Transforming Transportation 2010Next Steps after Copenhagen:Opportunities and Challenges in the Transport SectorJanuary 15, 2010

Overview of Climate Finance mechanisms for Adaptation

January 15, 2010Washington, DC

Inter-American Development Bank

Sustainable Energy and Climate Change Unit

(ECC)

Table of content1. Investments and financial flows needed for adaptation2. Additional investment and financial flows in 2030 in adaptation per sector3. Sources of investment and financial flows4. Funding for adaptation

4.1 Special Climate Change Fund4.2 Least Developed Country Fund4.3 Adaptation Fund4.4 Climate Investment Funds SCF PPCR4.5 Sustainable Energy and Climate Change Fund, SECCI

5. From Copenhagen to Mexico6. Innovative sources of finance7. Potential of Convention and Protocol funds

Adaptation measures will require additional I&F flows; several tens of billion $ per year (estimates between 40 to 170 billion $)*

Amounts are large in absolute terms, but small relative to global GDP and investment

Development patterns need to be changed now, because investment decisions taken today will affect greenhouse gas

emissions of the future.

Existing climate change funds would need to be enhanced at a greater scale

Creating climate change safe future will require:

Shifts in investment patterns,

Scaling up funding,

Optimizing the allocation of existing funds.

1. Investments and financial flows needed for adaptation

*Source: UNFCCC, Assessing the costs of adaptation to climate change; a review of the UNFCC and other recent estimates, 2009

2. Additional investment and financial flows for 2030 in adaptation per sector (SRES A1B and B1)

Global: Overall needs identified in this study correspond to 0.2 – 0.8 % of global investment flows or 0.06- 0.21 % of projected GDP in 2030.Developing countries: USD 28 to 67 billion in 2030.Amount large in absolute terms, but small relative to GDP and investment

Sector Global

(billion USD)

Share of developing countries

Agriculture, forestry and fisheries

14 50 %

Water supply 11 80 %

Human Health 5 100 %

Coastal zone 11 40 %

Infrastructure 8130 25 %

Source: UNFCCC, Assessing the costs of adaptation to climate change; a review of the UNFCC and other recent estimates, 2009

UNFCCC estimates of global investment costs for adaptation

• Private sources of funding can be expected to cover a portion of the adaptation costs in several sectors. In particular in the AFF and Infrastructure sector where investment in privately own physical assets would be needed.

• However, public resources are expected to play a predominant role in all adaptation sectors.

• National measures will be needed to encourage/support private sector adaptation and additional sources of funding dedicated to adaptation will be needed.

3. Sources of investment and financial flows

4. Funding for adaptation UNFCCC Funds:

GEF: Enabling activities: adaptation in the context of national

communication SPA (funding as part of the GEF trust fund – follow the

principle that projects shall have global benefit) Special Funds under the Convention:

SCCF LDCF

Adaptation Fund under the KP Multilateral Funds: Climate Investment Funds (CIF), MDBs

(example of SECCI in IADB), etc. Bilateral Funds

4.1 Special Climate Change Fund (SCCF)Eligibility and framework to allocate

fundsGovernance

Support services

Implementation Source and levels of funds

All developing countries that are Party to the Convention

SCCF priority is adaptation planning and measures in climate-sensitive sectors.

Co-financing required

Council under the

GEF

GEF secretariat /

GEF implementing

and executing agencies

Through GEF framework – implementing agencies

Voluntary contributions

by donors

About $ 100 million pledged

4.2 Least Developed Country Fund (LDCF)Eligibility and framework to allocate

fundsGovernance

Support services

Implementation

Source and levels of funds

Under LDCF, LDCs receive support for the preparation of NAPAs as a framework for further funding of immediate needsLDCs receive funding for some portion of the urgent needs identified in NAPAsLDCF prioritizes “urgent and immediate” adaptation needsLDCF supports NAPA preparation, and priority NAPA activity implementation.

Council under the GEF

GEF secretariat

GEF implementing and executing

agencies

Through GEF framework – implementing agencies

Voluntary contributions by donors

About $200 million pledged

4.3 The Adaptation Fund (AF)Eligibility and framework to allocate

fundsGovernance

Support services

Implementation Source and levels of funds

All developing countries that are Party to the Kyoto ProtocolConcrete adaptation projects or programmesAllocation of resources take into account: • Level of vulnerability• Level of urgency and risks arising from delay• Ensuring access to the fund in a balanced and equitable manner• Lessons learned in project and programme design and implementation to be captured• Securing regional co-benefits to the extent possible, where applicable• Maximizing multi-sectoral or cross-sectoral benefits• Adaptive capacity to adverse effects of climate change

Adaptation Fund Board

GEF secretariat

World Bank as trustee

Through “Accredited executing agencies”

“Direct access” to National Implementing Entities (NIE)

2 % share of proceeds of CDM

Voluntary contributions by

donors

Depending on quantity and price of CERs (until 2012). Assumingly $ 80−300 million per year

4.4 Climate Investment Funds: Structure of the Funds

Clean Technology Fund (CTF)(US 5.1 Billion)

Objective: To promote investment in clean energies

Clean Technology Fund (CTF)(US 5.1 Billion)

Objective: To promote investment in clean energies

Strategic Climate Fund (SCF) (US 1.0 Billion)

Objective: to support targeted programs aimed at providing financing to pilot new approaches at a specific climate change

challenge or sectoral response.

Strategic Climate Fund (SCF) (US 1.0 Billion)

Objective: to support targeted programs aimed at providing financing to pilot new approaches at a specific climate change

challenge or sectoral response.

Climate Investment Funds (US$ 6.1 Billion)

Pilot Program for Climate Resilience (PPCR)

Forest Investment Program (FIP)

Program for scaling-up renewable energy in low income countries (SREP)

4.4.1 Climate Investment Fund – Objectives

• Demonstrate potential for transformational change – at country / sectoral level

• Scale-up investments moving from project to programs - accelerate public and private investments

• Seeks to maximize co-benefits of poverty reduction and sustainable development

• Utilize and leverage skills and capabilities of Multilateral Development Banks

• Ensure public and private sector activities compliment and leverage each other

• Foster learning-by-doing and effective knowledge management to ensure sharing of lessons at national, regional and international levels

• Support and inform UNFCCC >2012 financial architecture discussions

• Pilot and demonstrate approaches for integration of climate risk and resilience into national and sector planning

• Strengthen capacities required to integrate climate resilience into development / vulnerable sectors

• Scale-up and leverage climate resilient investment, building on other ongoing initiatives

• Enable learning-by-doing and sharing of lessons at country, regional and global levels

• Regional PPCR pilots to also strengthen cooperation and capacity at the regional level – to support national and regional development planning and processes.

4.4.2 Objectives of the Pilot Program for Climate Resilience, PPCR

4.4.3 Bolivia – Water resources pilots & PPCR

IDB Support with SECCI funds (under preparation):

Design and implement demonstrative adaptation measures on water sector in the Altiplano:• drought: water collection, small dams, micro-irrigation, water usage efficiency, etc.• flooding: riverbed protection with retaining walls, water flow deviation, etc.• disaster risk prevention: protection of watershed heads, recuperation of micro-watersheds with active erosion, slope stabilization, early warning systems, etc.

Pilot Program on Climate Resilience (PPCR)Objectives• Pilot and demonstrate approaches for integration of climate risk and resilience into national and sector planning• Strengthen capacities required to integrate climate resilience into development / vulnerable sectors• Scale-up and leverage climate resilient investment, building on other ongoing initiatives• Enable learning-by-doing and sharing of lessons at country, regional and global levels

Preliminary identification of Priority sectors:• Water resources• Food Security• Health- DRM – as cross sectoral

Lessons learned from pilots will serve as bases for:• Development of PPCR’s Strategic Program for Climate Resilience• Scale-up adaptation measures in priority sectors

4.4.4 PPCR – Caribbean Pilot

Jamaica program

Haiti program

Regional program

Dominica program

St. Lucia program

St. Vincent & Grenadines

program

Grenada program

Activities will proceed along two tracks: • Country-based investments in highly vulnerable countries:

- Haiti - Jamaica - 4 small island states from the Organization of Eastern Caribbean States (Dominica, St. Lucia, St. Vincent and the Grenadines, and Grenada)

Thematic approach towards Integrated Coastal Zone Management (ICZM) with emphasis placed on coastal development (includes vulnerable coastal settlements, infrastructure and ecosystems)

• Region-wide activities: focused on:- climate monitoring,- institutional strengthening- capacity building and knowledge sharing

4.5 IDB-SECCI

SECCI Products 2007 - 2008

Financial Products Non-Financial Products

Technical Cooperation Projects

53 Conferences 12

Investment Grant Projects*

0Memorandums Of Understanding

6

Policy Based Loans 1 KCPs 2

CIF Investment Plan 1Full Time Expert Advise on CC

4

SECCI Products: 1. Operation Related Activities: involve the

use of financial products in the areas of Climate Change and Sustainable Energy such as:

- Technical Cooperation - Investment Grants

Activities are aimed at mainstreaming CC into the Bank’s operations by including climate change dimensions into new or ongoing projects

2. Institutional Strengthening Activities: involve activities for institutional strengthening in CC and SE Policies of borrowing countries. Includes:

- Knowledge and Capacity Building Products - Climate Change Dissemination Activities (i.e.

Conferences and Workshops on CC), and Partnership Development and Trainings.

2 funds:

• SECCI-IDB

• SECCI-Multi-donor Fund

* New guidelines for the implementation of Investment Grants were approved in early 2009

4.5.1 IDB’s Strategic lines of action in Climate Change

Mitigation

Adaptation

i. Knowledge Development

ii. Institutional Strengthening

iii. Sector Guidelines/Climate Proofing

iv. Sectoral Lending in Key Areas

v. Scaling-up Investment

4.5.2 SECCI Adaptation activities by country

Source: Mainstreaming climate change adaptation into development sectors;Review of work in progress and work plan for 2010-2012, IDB 2009

4.5.3 SECCI Adaptation activities by activity-type

Source: Mainstreaming climate change adaptation into development sectors;Review of work in progress and work plan for 2010-2012, IDB 2009

Parties “took note” of the Copenhagen agreement - a pledge by developed countries to provide 30 billion $ a year for climate change till 2012 and 100 billion $ by 2012 and of the establishment of a “Green Climate Fund”

Funds are to be distributed through mitigation, adaptation, technology and REDD

Still to be decided / clarified: Legal status of the “Copenhagen agreement” will become formally

applicable and how Under which form / finance will the 30 $ billion be pledged for What will be the share of finance for adaptation What will be the governance of the new fund and how will this be

linked to existing mechanisms (such as CIF, GEF, Adaptation Fund, etc.)

Detailed disbursement modalities

5. From Copenhagen to Mexico

6. Innovative sources of financeProposals Estimated revenues

Extension of the 2% levy on CDM to other Market Mechanisms

Depends on size of carbon markets – based on current size: $ 10 – 50 million a year

Auction of allowances for international aviation and marine emissions

$ 20 – 30 bio a year for both marine and aviation, if applied globally.

Access to renewable programmes in developed countries

5% share of renewable energy programmes in developed countries = $ 500 million a year

Auction of Assigned Amount Units Auction of 2% of AAUs for 25-40% reduction by 2020 at USD 25 price could bring about $ 5 bio a year.

International air travel levy Levy of 5 euro on first and business class tickets – about $ 13 bio a year.

International Maritime Emission Reduction Scheme: Fee of $ 10 per tonne of CO2 globally = $ 3bio a year

Funds to invest foreign exchange reserves Voluntary allocation of up to 5 per cent of foreign exchange reserves to a fund – about $ 100 billion a year

“Carbon taxes” applied globally Levy of $ 2/tCO2. Applied globally could generate $ 48 billion a year.

Debt-for-clean-energy Swap No estimation available.

Nationally Appropriate Mitigation Actions No estimation available.

Source: United Nations Framework Convention for Climate Change, UNFCCC

• The funds that are currently available under the Convention and the Protocol are small compared to the magnitude of the needs identified in this study.

• The funds that are managed by the GEF (SPA, LDCF and SCCF) that are available for adaptation projects currently are about USD 275 million worldwide.

• The Adaptation Fund could receive USD 80‑300 million per year for the period 2008–2012.

• Assuming a share of proceeds for adaptation of 2 per cent continues to apply post 2012, the level of funding could be:– USD 100–500 million per year for a low demand;– USD 1–5 billion per year for a high demand.

• New sources of funding need to be identified!

7. Potential of Convention and Protocol fundsSummarizing……

www.iadb.org/secci

Contact information: Maria Netto, mnetto@iadb.org

Alfred Grünwaldt, alfredg@iadb.orgSandra Valencia, svalencia@iadb.org