Institute for Global Environmental Strategies Climate Finance Climate

Institute for Global Environmental Strategies Climate Finance Climate finance trends in Asia and the implications of scalability of the Green Climate Fund on access modality Yuqing Ariel Yu Senior policy researcher, Climate and Energy Area Institute for Global Environmental Strategies (IGES) February 17 th, 2014 1

IGES-Future climate regime Outline • Background knowledge about climate finance • Climate finance trends in Asia Role of business for enabling sustainable lifestyles • The implications of scalability of the Green Climate Fund on access modality Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 2

IGES-Future climate regime Scope, terminology, and data sources • Definition of climate finance – No globally agreed definition – The Standing Committee on Finance is working on an operational definition (decision-/CP. 19) Role of business for enabling sustainable lifestyles Global climate finance in 2012 Sources Multilateral climate funds $1. 4 b Bilateral climate funds $0. 2 b Development finance institutes $122 b Government budgets $12 b Private sector $224 b Adaptation $22 b $359 b Mitigation (including REDD+) $357 b Source: CPI, 2013 Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 3

IGES-Future climate regime Principles and criteria of public climate finance • Fund mobilization – Equity: common but differentiated responsibilities and respective capabilities (UNFCCC, Art. 2) • • Who should pay the cost? The polluter pays Define a legal obligation for compensatory finance, distinctly different from aid flows – Adequacy and predictability in the flow of funds and the importance of appropriate burden sharing among the developed country Parties (UNFCCC, Art. Role of business for enabling sustainable lifestyles 4. 3) – Funding must be adequate, predictable, sustainable as well as new and additional (Bali Action Plan, Art. 1(e)(i)) – Scaled-up, new and additional, predictable and adequate funding shall be provided to developing country Parties (the Cancun Agreements, Para. 97) • Fund governance – Transparent and accountable – Equitably represented • • • Traditional ODA gives donor countries a bigger voice in funding decisions Climate finance is compensatory in nature and should be governed based equitable representation of developed and developing Parties Fund disbursement – National ownership • Yuqing Ariel Yu Meets sustainable development needs in developing countries IGES | http: //www. iges. or. jp Climate and Energy Area 4

IGES-Future climate regime Institutional arrangements under UNFCCC and climate finance commitments • Institutional arrangements – – The Standing Committee on Climate Finance The Green Climate Fund The Global Environment Facility (climate focal area) Role of business for enabling sustainable lifestyles The Adaption Fund (Kyoto Protocol) • Climate finance commitments – The Fast-start Finance (FSF): Developed countries collectively provide approximately USD 30 billion during 2010 to 2012 (The Cancun Agreements). – The long-term finance: Developed countries collectively provide USD 100 billion annually by 2020 (The Cancun Agreements). – Provide resources of at least the average annual level of the FSF period for 2013 -2015 (The Doha Gateway) Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 5

IGES-Future climate regime Role of business for enabling sustainable lifestyles Climate finance trends in Asia Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 6

IGES-Future climate regime Scope, terminology, and data sources • Scope of this study – Dedicated public climate finance (UNFCCC climate funds, multilateral initiatives outside the UNFCCC, bilateral ODA) – Other official flows (OOFs) excluded Role of business for enabling sustainable lifestyles – Time scale: 2006 -2012 – Countries: East, South, and East South Asian countries • 8 countries are least developed countries (LDCs) • 10 countries are non-LDCs • Data sources: – IGES FSF database and Climate Funds Update Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 7

IGES-Future climate regime Asia received a total of USD 10, 754. 4 million in climate finance (2006 -2012) Non-LDCs: China Bangladesh India Bhutan Climate finance according to thematic activities LDCs: Afghanistan • Indonesia Role of business for enabling sustainable lifestyles Malaysia Cambodia Lao PDR Mongolia Maldives Pakistan Myanmar Philippines Nepal Sri Lanka Thailand Vietnam Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 8

IGES-Future climate regime The FSF period saw a ten-fold increase in climate finance to approximately USD 3, 500 million annually • Yearly distribution of climate finance Role of business for enabling sustainable lifestyles Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 9

IGES-Future climate regime Climate finance was not evenly distributed among the recipient countries • Country distribution of climate finance Role of business for enabling sustainable lifestyles Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 10

IGES-Future climate regime Asia received 68% of funding in the form of concessional loans Non-LDCs: China Bangladesh India Bhutan Financial instruments LDCs: Afghanistan • Indonesia Role of business for enabling sustainable lifestyles Malaysia Cambodia Lao PDR Mongolia Maldives Pakistan Myanmar Philippines Nepal Sri Lanka Thailand Vietnam Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 11

IGES-Future climate regime Mitigation represented the largest share of funding during both periods and accounted for almost 70% of the money received in the respective periods • Comparisons of themes Role of business for enabling sustainable lifestyles Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 12

IGES-Future climate regime The composition of financial instruments changed dramatically before and during the FSF period • Comparisons of financial instruments Role of business for enabling sustainable lifestyles Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 13

IGES-Future climate regime The order of recipient countries also changed • Comparisons of recipient countries Role of business for enabling sustainable lifestyles Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 14

IGES-Future climate regime The decline of the role of UNFCCC funding and the rise of multilateral and bilateral initiatives outside the UNFCCC was a notable feature during the FSF period • Comparisons of funding sources Role of business for enabling sustainable lifestyles Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 15

IGES-Future climate regime Climate finance profile of Philippines 2006 -2012 Overview Themes Instruments USD Million Thailand Project # Mitigation REDD+ Adaptation Multi-foci Unknown Grants Con loans Others 396. 6 59 363. 4 10. 4 22. 6 0. 2 0 226. 6 170 0 Sources: IGES et al. 2013; CFU, 2014 Role of business for enabling sustainable lifestyles The FSF Period (2010 -2012) The Pre-FSF Period (2006 -2010) UNFCCC Outside UNFCCC GEF 4 Thailand LDCF& SCCF Bilateral Multilate ral 14. 6 0. 9 14. 1 0 Subtotal UNFCCC Outside UNFCCC GEF 5 29. 5 LDCF&S CCF AF CIFs Bilateral Multilate ral 0 0 0 170. 2 196. 8 0 Subtotal 367 Sources: IGES et al. 2013; CFU, 2014 • Thailand has a strong focus on mitigation. • Thailand is the largest recipient country of CIFs’ funding in Asia. • Thailand saw a 12 -fold increase in climate finance during the FSF period. Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 16

IGES-Future climate regime Implications • Different nature of UNFCCC funding and bilateral funding – UNFCCC funding: GHG emissions level and reduction potential – Bilateral funding: existing programs and relationships Role of business for enabling sustainable lifestyles • Disbursement rate was low in Asia – Who have supported for preparation have not further committed to financing implementation – The dichotomy of readiness support and implementation support calls for further coherence and coordination at the UNFCCC level • Urgent need for a working definition of climate finance – Defining mobilized private finance in the context of long term finance Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 17

IGES-Future climate regime Role of business for enabling sustainable lifestyles The Green Climate Fund (GCF) Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 18

IGES-Future climate regime Multilateral and bilateral climate funds Role of business for enabling sustainable lifestyles Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 19

IGES-Future climate regime The Green Climate Fund • The GCF is expected to deliver the lion’s share of the USD 100 billion annual goal. • There is no commensurate increase of knowledge and experience Role of business for enabling sustainable lifestyles with regard to delivering the scaled-up finance in a way that can reflect the needs and challenges of developing countries. • What are the implications of the scalability of the GCF? – The GCF has to employ a devolved managerial structure for fund disbursement in order to live up to its envisaged scale. – The GCF needs enhanced access mode partly because it has to meet the mandate of operating in a cost-effective way whilst initiating operation soonest possible. Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 20

IGES-Future climate regime Proper fund management requires people and the location of staff members matters Fund AF Net disbursements in 2011 (USD million) 40 Administrative expenses (USD million) 5. 4 Approximate numbers of personnel employed 6 GEF* 739 47 94 CIFs 1082 24 8 Source: GCF, 2013 a Role of business for enabling sustainable lifestyles *GCF (2013 a) does not specify whether the numbers in the table counts the size of GEF climate focal area only or the size of GEF as a whole that includes other focal areas as well. However, the context of the paper implies that the numbers include GEF climate focal area only, because the paper has no mention of GEF other focal areas. • The difference of staffing density is not necessarily an indication of inefficiency or a suggestion of comparison. Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 21

IGES-Future climate regime The GCF needs to operate in a devolved way and outsource certain management functions to accredited intermediaries Role of business for enabling sustainable lifestyles Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 22

IGES-Future climate regime The enhanced direct access modality • The experience of the Adaptation Fund shows that the administrative fee for national entities is significantly less than the fees quoted by multilateral entities. Role of business for enabling sustainable lifestyles • The administration of funding should be delegated as much to national financial entities in developing countries to ensure the GCF to operate in a cost-effective and streamlined way. • To operate as soon as possible, the GCF could start with an enhanced access mode by devolving funding decisions, at least at the outset, to the existing climate funds under the UNFCCC (i. e. , the GEF and the AF). Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 23

IGES-Future climate regime Asia has only two NIEs accredited by the Adaptation Fund • All multilateral climate finance to Asia was channelled through multilateral organizations and Asian countries have had zero experience of directly accessing multilateral climate finance. Role of business for enabling sustainable lifestyles • Asia has only two NIEs accredited—the National Bank for Agriculture and Rural Development in India and the Ministry of Planning and International Cooperation in Jordan. – Latin America and Africa have 7 and 6 NIEs accredited by the AF Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 24

IGES-Future climate regime Barriers faced by Asian countries in accrediting NIEs • Direct access is not an obligation or perquisite to obtain funding from multilateral climate funds, it offers desirable opportunities to improve financial integrity and management and consequently better attract resources from other donor agencies. Role of business for enabling sustainable lifestyles • First, the countries that have a strong need for adaptation in general have had very limited experience of handling international funding and are lack of proved record of financial integrity. • Second, the long-standing relationship with multilateral implementing entities (MIEs) may result in a path dependency that precludes the role of NIEs. • Finally, developing countries have difficulties in identifying the best suited institution as the NIE. Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 25

IGES-Future climate regime National climate funds are NFEs that might be allowed for enhanced direct access by the GCF and can offer many opportunities for Asian countries. Country Fund name Bangladesh Climate Change 2010 Resilience Fund A coordinated financing mechanism by the Government of Bangladesh, development partners and the World Bank to address the impacts of climate change Bhutan Trust Fund for Environmental Conservation 1991 Supporting environmental conservation in Bhutan by providing grants for government agencies, local non-governmental organizations, grassroots communities and qualified Bhutanese individuals for conservation projects. Cambodia Climate Change Alliance Trust Fund 2010 Securing external funding for priority interventions to develop technical and lifestyles Role of business for enabling sustainable institutional capacity at national and sub-national levels to address current and future climate related challenges China Clean Development Mechanism Fund 2007 Managing government revenue from CDM projects to provide immediate supports for line ministries to conduct policy studies, international negotiation, capacity building and public awareness India The Umbrella Programme on 2008 National Resources Management A programme based approach wherein different channel partners (agencies) are being supported for implementing various types of sustainable projects. Indonesia Climate Change Trust Fund 2009 Developing innovative ways to link international finance sources with national investment strategies Lao PDR Environmental Protection Fund 2005 Strengthening environmental protection, sustainable natural resources management, biodiversity conservation and community development. Philippines People’s Survival Fund 2012 Providing long-term finance streams to enable the government to effectively address the problem of Climate Change Thailand Energy Conservation Promotion Fund 1992 Managing government levies collected on petroleum products to finance the promotion of renewable energy and energy efficiency Yuqing Ariel Yu Establishment year IGES | http: //www. iges. or. jp Objectives Climate and Energy Area 26

IGES-Future climate regime Policy recommendations • The GCF has to employ a devolved managerial structure to live up to its envisaged scale. The GCF should allow accredited institutions to make funding decisions and outsource certain management functions to developing countries for the sake of cost effectiveness and country ownership. The GCF should allow for enhanced direct access to meet the mandates of scalability, urgent operation, and cost effectiveness stipulated in its Governing Instrument. Role of business for enabling sustainable lifestyles • The GCF should avoid making decisions at the project level and devolve certain funding decisions to the existing institutional arrangements under the UNFCCC for the purpose of urgent operation. For the interim period that the GCF acquires its in-house capacity and rationalizes its financial mechanism, it should avoid getting involved in project- and program-level decision making. Rather, it can accredit the GEF and the AF as the funding entities for mitigation and adaptation activities, respectively; and channel funding according to investment plans of the GEF and the AF. • The GCF should include capacity building of NFEs as one of the priorities in its readiness program. The GCF should support building capacity of NFEs at the outset, in particular by providing sustained funding in its readiness program. Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 27

IGES-Future climate regime Role of business for enabling sustainable lifestyles Thank you for your attention yu@iges. or. jp Yuqing Ariel Yu IGES | http: //www. iges. or. jp Climate and Energy Area 28