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Who and How to Finance the post-2015 Sustainable Development Agenda?

Yannick GlemarecCopenhagen, 28 February 2014

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Part I

The mandatory Universality of Sustainable Development Goals

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Financing Needs for Environment and

Climate far exceed current levels of Official

Development and Climate Finance

UNDP: Human Development Report 2011/12

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Costs Versus Investment

Source: Global GHG Abatement Cost Curve v2, McKinsey (2009)

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Global investment in clean energy

Source: Bloomberg New Energy Finance (2013)

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The capital intensity of renewable energy

Source: UNDP, Derisking Renewable Energy Investment (2013). See Annex A of the report for full assumptions.

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Source: UNDP, Derisking Renewable Energy Investment (2013). See Annex A of the report for full assumptions. All assumptions (technology costs, capital structure etc.) except for financing costs are kept constant between the developed and developing country.Operating costs appear as a lower contribution to LCOE in developing countries due to discounting effects from higher financing costs.

Renewable energy vs fossil-fuel energyDeveloped vs. developing countries

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Mandatory Universality

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Creating Attractive Risk/Reward Profile for Green Investment

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Challenges to Financing the Post-2015 ERA

• Reforming Financial Markets.• Transforming sector markets efficiently to align

corporate and household finance with global and national sustainable development goals

• Increasing sources of public finance to create enabling policy environments and catalyze private finance

• Enhancing the capacity of developing countries to access, combine and sequence development finance to support market transformation

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Part II

Market Transformation for Sustainable Development

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Market Transformation to Scale Up Green Investment

Source: Yannick Glemarec, 2011

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Selecting a public instrument mix to catalyse renewable energy investment

Source: UNDP, Derisking Renewable Energy Investment (2013).

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Illustrative modelling case-study for South Africa (8.4 GW, wind): risk waterfalls

Source: UNDP, Derisking Renewable Energy Investment (2013). Data obtained from interviews with wind investors and developers. See Annex A of the report for full assumptions. The post-derisking cost of debt and equity show the average impacts over a 20 year modelling period, assuming linear timing effects.

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Illustrative modelling results for South Africa (8.4 GW, wind)

Source: UNDP, Derisking Renewable Energy Investment (2013). See Chapter 3 and Annex A of the report for full assumptions.

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Financing On-Grid Wind Power Market Transformation

Select Cornerstone Instrument

AuctioningExamples:

Policy Derisking

Examples:

Public Instrument Package(Illustrative – on-grid)

Financial Derisking

Examples: Examples:

Quality standards

O&M skills

Public awareness

Loan guarantees

Public loans

Capital subsidy

Direct Incentives

Project Financing(Illustrative)

Project Company

CapitalMarkets

Source: UNDP, Derisking Renewable Energy Investment (2013), adapted. Source: UNDP

Feed-in tariff

FiT premium

Dev. Bank

Credit enhancement

Project Company

Equity(from investors)

Debt(lenders, bond issuance, etc.)

Construction Contract

Operation & Maintenance

Contract

Off-take Contract (e.g., a power

purchase agreement)

Source: Adapted from Principles of Project Finance

issues Corporate bonds

Climate Bond Financing(Illustrative)

Public grants Soft loans electricity rates/ PBP

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Part III

New Sources of Finance for Sustainable Development

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Contribution to 5-year Cumulative Global GDP (constant 2005 US$)

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North-South Flows 1990-2010

Source: Jenks and Jones, 2013

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Finance Available to Developing Countries

EU, 2013

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Domestic Revenue Mobilization

• Broadening tax bases• Fiscal reforms: from fossil fuel subsidies to

polluter fines and reduction of loopholes• Curbing Illegal flows and aggressive transfer

pricing• Tapping private wealth• Commodities and Sovereign Wealth Funds• Innovative sources of finance: diaspora bonds

and remittance-backed bonds; resources-for-infrastructure;

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Subsidies and Social Spending, 2010

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Climate Finance vs. fossil fuel subsidies

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Sovereign Wealth Funds

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Potential Sources of Innovative Climate Finance

1. Public finance from climate sources Phase out of regressive fossil fuel subsidies Fossil fuel extraction royalties/licenses AAU auction proceeds Emission Trading Schemes (ETS) auction proceeds Carbon taxes/Carbon export optimization taxes Marine and aviation/bunker fuel levies Offset levies Wires charge on electricity production

2. Public finance from non-climate sources ‘Tobin’ tax, taxing revenues from financial transactions Leveraging of IMF Special Drawing Rights

3. Carbon markets4. Other international financing proposals

Debt for clean energy swap International Lottery

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Global Networks and Alliances

• The “Summary of Commitments” of the UN SG Summit on maternal and child health documents more than $ 40 billion of promises over a five year period from:– 35 countries in attendance;– 54 civil society organizations (the Gate Foundation pledged $ 1.5 billion);– Private companies (Merck committed $ 840 million for HIV prevention and treatment);– Multilateral agencies (WHO, GAVI, WB, etc.)

• Similar fluid and dynamic coalitions are coalescing around all major collactive challenges.

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ODA in the “Post-2015” Era

• The expanding set of global objectives: Peace, Poverty, Equality and Environmental Sustainability;

• The New faces of poverty and equity;• The fiscal capacity of low-income countries, fragile states and some small

island states remain very limited;• Exposure and countries’ capacities to cope with shocks vary;• Conflicts and negative development;• Common and differentiated responsibilities for global commons

(compensation, trade or ODA?);• A number of innovative financing instruments required a global

cooperation;• Regional and thematic unbalance of private capital flows;• Markets are public-private partnerships, not platonic entities from high on;• The Complexity of Sustainable Development Finance.

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Part IV

Green Finance Preparedness

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Climate Change Finance: Sources, Agents and Channels

Source: Adapted by Yannick Glemarec from Atteridge and others (2009)

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Accessing the Adaptation Fund

• Direct access is about developing institutions that have capacities for financial management, integrity, transparency and self-investigatory powers;

• UNDP encourages countries to develop their institutions to qualify for direct access.

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UNDP’s Approach to assist countries to plan for, access, deliver and report on finance for low emission growth

Supporting national systems through this process for climate finance helps countries to use finance effectively

Building capacities for planning, accessing, delivering and MRV ensures climate finance is available and effective in all countries

Prepare Green LECRDS

•Assess needs and priorities, and identify barriers to investment•Identify policy mix and sources of financing

Green Markets Formation

•Directly access finance•Blend and combine finance•Formulate project, progamme, sector-wide approaches to access finance

Development of Implementation

Capacities

•Implement and execute project, programme, sector-wide approaches•Build local supply of expertise and skills•Coordinate implementation

Monitor, Report & Verify

•Allows to formulate transparent sector-wide approaches

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Formulation of Low Emission Climate Resilient Strategy

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Policy & Financial De-risking

Performance-

basedPayments

Scaled-up Mitigati

onActions

= +

Domestic Public Finance (National

Climate Funds)

Tax Credits

Carbon Offsets

Financing Transformation Approaches

Public/Private Finance(Tariff premium)

XLeveraged Private

Financial Flows

International Public Finance (Global

Vertical Funds)

International Public/Private Finance

(Carbon Markets)

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Mali National Policy on Climate Change

Mali National Strategy on Climate Change (2012-2017)

Strengthening national capacities and research

Integration of climate change at the level of sector based policies

Integration of climate change at the level of territorial policies

Incite the private sector to participate in the national effort regarding climate change

PROGRAMME-RELATED

FRAMEWORK

Mali National Climate Fund

STRATEGIC PLAN 2014

(RESULT FRAMEWORK)

National Climate Funds to Support Transformative Changes

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UNDP’s support for Green Finance Preparedness in China

Formulate provincial strategies

•UNDP supported formulation of 32 provincial climate change programmes to implement national strategy•Identified priority mitigation and adaptation priority measures and associated costs

Green Markets Formation

•UNDP supported development of 2 energy efficient roadmaps•Assisted efforts to gradually develop a carbon market including a national emissions trading scheme

Develop Implementation

Capacities

•UNDP contributed to the design of China’s first climate change think-tank – National Centre for Climate Change Strategy and International Cooperation

Monitor, Report & Verify

•UNDP supported development of national GHG inventory in framework of National Communications•Critical for emission trading systems and formulation of transparent sectoral NAMAs

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Many tools available Online