Tag Archives: INDC

National-level climate finance tracking can help countries meet NDC goals effectively

November 10, 2016 |

 

Around the world, 74% of total global climate finance and over 90% of total private climate finance is raised and spent in the same country. As low-carbon, climate-resilient assets become increasingly attractive to national actors compared to the alternatives, action on climate is largely happening within national contexts.

In fact, the domestic bias of climate finance is likely understated. CPI’s Global Landscape of Climate Finance reports have repeatedly highlighted substantial data gaps around domestic budgets in particular.

In 2014, the majority of global climate finance was raised and spent in the same country. Because domestic investment dominates, it is vital to get policies right. This requires robust national-level climate finance tracking.

The majority of finance was raised and spent in the same country. Because domestic investment dominates, it is vital to get policies right. This requires robust national-level climate finance tracking.

Clearly, understanding how finance flows within countries is key to accelerating countries’ transitions toward low-carbon and climate-resilient economies.
CPI has worked with counterparts in Germany, Indonesia and most recently Côte d’Ivoire to track their climate finance and other organizations are also tracking climate finance at the national level. For example, Institute for Climate Economics (I4CE) used CPI’s approach as a foundation to conduct a similar exercises in France, Trinomics has done similar work in Belgium, and the United Nations Development Programme (UNDP) has worked with seven Asia-Pacific countries to understand climate-related public expenditures in their national budgets.

While these countries have made a start, more work is urgently needed as improved national tracking will critically inform countries’ efforts to implement their Nationally Determined Contributions (NDCs) submitted under the Paris Agreement. The International Energy Agency (IEA) has estimated that, to implement NDCs, energy efficiency and low-carbon technologies require$13.5 trillion in investment over the next 15 years. Ensuring that investment from a range of national and international sources is optimized will help ensure impact and value for money.

There are many benefits to improving national-level climate finance tracking systems

Identifying, tagging, and tracking budget allocations that respond to climate change challenges enhances governments’ ability to allocate appropriate resources at the national and local levels and ensure they are being spent as intended.

Increasing understanding of what different domestic and international, public and private actors are investing, in which climate-relevant activities, and what instruments they are using to deliver finance, can help identify blockages, and highlight opportunities to better coordinate spending and reallocate finance to areas where it will have more impact.

Extending the scope of tracking exercises beyond climate finance can reveal how much public money is flowing to support business-as-usual investments including in fossil fuels, and unsustainable land use. Understanding where public incentives are misaligned with climate goals can highlight opportunities to improve policies and ensure public spending is coherent.

CPI has designed related tools to inform decision makers thinking around this broader question and is applying them in the context of REDD+ related finance in Côte d’Ivoire to support the country’s work to develop a REDD+ strategy.

Ultimately, such tracking provides a basis for decision makers to ensure that limited domestic and international public resources are targeted where and how they are needed most to help countries achieve their goals. Effective tracking provides a starting point to inform discussions about what is happening, and informs the design of more cost-effective policies and financial instruments to mobilize investment.

CPI remains committed to improving understanding of climate finance flows at the national and local levels.

Since 2010, CPI has supported decision makers from the public and private sectors, at international, national and local levels, to define and track how climate finance is flowing from sources and actors, through a range of financial instruments, to recipients and end uses. Providing decision makers with robust and comprehensive information helps them to assess progress against real investment goals and needs. It also improves understanding of how public policy, finance and support interact with, and drive climate-relevant investment from diverse private actors, and where opportunities exist to achieve greater scale and impact.

This blog is part of a series on climate finance tracking challenges. Read more here.

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This article first appeared on Public Finance International.

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Uncertain Future of the Climate Investment Funds Makes Achieving Climate Finance Goals Tougher

June 14, 2016 | and

 

On June 15th and 16th members of the Joint Trust Fund Committee of the Climate Investment Funds (CIF) meet in Oaxaca, Mexico, to discuss, among other issues, the strategic direction of the fund. One topic to be discussed is the CIF’s “sunset” clause, which was conceived at the fund’s establishment and requires it to conclude its operations once a new financial architecture – now embodied by the Green Climate Fund (GCF) – is effective.

Now that the GCF is operational, some feel that the “sunset” clause should be activated. In any case, the CIF does not currently have sufficient resources to finance the projects in its pipeline or those of new pilot countries.

Contributing governments are certainly in a tough position. They are faced with the question of whether or not to re-up their financial commitment to the CIF, but have recently pledged significant resources to the GCF – over $10 billion in total – and their budgets for climate aid are under pressure as resources are diverted to address other immediate needs such as the European migration crisis.

The lack of clarity regarding the future of the CIF is having a real impact. The dearth of financial resources for the CIF and uncertainty regarding whether new resources will be made available is disrupting recipient countries’ project pipelines and delaying the development of investment plans for new CIF pilot countries. This is also creating doubt within the multilateral development banks (MDBs) regarding how much and what type of concessional finance they will have access to. This is important because of the role concessional finance plays in overcoming investment barriers and helping MDBs to mobilize internal resources to meet their climate finance commitments.

As the CIF Joint Trust Fund Committee meets this week and makes major decisions on the fund’s future direction, it is worth reflecting on what role the CIF has played within the global climate finance architecture and what unique elements it has brought to the table. A study recently published by CPI – The Role of the Climate Investment Funds in Meeting Investment Needs – can help inform this reflection. The report highlights climate-relevant investment needs and assesses the CIF’s distinctive role in bridging investment gaps compared to other multilateral climate funds.

It concludes that the CIF should be kept in operation to maintain progress towards meeting international climate finance targets, particularly while the GCF gets up to speed and in light of key temporal and structural differences that exist between the two funds. The CIF has played a particularly important role in financing climate action because of a few distinctive features. These include:

  • The CIF’s programmatic approach. In partnership with the MDBs – the CIF’s implementing entities – the fund involves recipient countries’ private and public stakeholders in the development and implementation of policy reforms and investments aligned with countries’ climate strategies. It starts with countries being informed of the indicative amount of resources they are eligible for, followed by the development and endorsement of the investment plans and finally approval of projects. This approach, which has provided a certain level of predictability to both the recipients and implementing partners, represents a role model for the development and implementation of countries’ Intended National Determined Contributions (INDCs). Translating INDCs into concrete investments will similarly require the mobilization of multiple stakeholders under coherent strategic investment plans and the development of supportive policy and governance frameworks.
  • The range of financial instruments available through the CIF and the fund’s risk appetite. Although some have yet to be fully utilized, the range of financial instruments offered by the CIF has proven to be particularly well-suited to foster the piloting of first-of-a-kind approaches and business models, and to take on market risks that others are not willing to take. A survey of developing countries and their climate finance priorities indicates that flexibility in financing terms and types of financial instruments provided is of “critical” importance to advance climate objectives.
  • The CIF’s focus on private sector engagement in mitigation, forestry and adaptation. The CIF has allocated more finance to drive private sector investment in these sectors than any other multilateral climate fund. It has also been the first to develop dedicated approaches to achieve this end, such as the private sector set-asides for forestry and adaptation, and is one of the only multilateral climate funds that offer concessional loans for these activities, as opposed to just grants. Building on this experience, the CIF holds the potential to further enhance private sector engagement in these areas going forward.

The CIF has experience and a functional structure in place, which can help to maintain momentum and bridge major climate investment gaps. Other climate funds have notable strengths, but do not necessarily offer the same capabilities as the CIF.

While the establishment of the GCF is intended to fill investment gaps, questions remain regarding the extent to which the fund will be able to deliver the scale and type of support recipient countries need in the short to medium-term as it gets up to speed.

As decision makers shape the international climate finance architecture and make choices about which funds and approaches they choose to support, they should consider the unique and positive features of existing funding mechanisms and how these features can help effectively address countries’ current and future investment needs.

Given the real scarcity of resources available, there is no easy answer. If they decide to keep the CIF alive, it may be worth exploring and taking decisions on alternative funding modalities to maintain at least certain elements of the CIF operational and mitigate a potential loss in the momentum it has created.

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Indonesia’s INDC – A step forward or a missed opportunity?

September 28, 2015 |

 

 

Indonesia submits its INDC

As the Paris climate negotiations draw closer, countries have been asked to submit their Intended Nationally Determined Contributions – INDCs – by 1 October. INDCs identify the actions a government intends to take as the basis of post-2020 global emissions reduction commitments, that will be included in the future climate agreement. The process of setting the INDC is bottom-up and country-led, in contrast to the top-down approach of the Kyoto Protocol. INDCs already submitted have been heavily scrutinized and judged for the level of ambition or leadership.

Given the importance of the INDCs as a way for nations to take stock of their goals and needs and to chart paths towards an ambitious outcome in Paris, our question here is whether Indonesia has taken full advantage of this opportunity to close the gaps in existing and newly proposed policy frameworks, to pave the way for a prosperous, decarbonized economy.

Baselines – going back to the drawing board

Indonesia is presenting its INDC as a deviation from business as usual using projections based on the historical trajectory (2000-2010). It assumes projected increases in the energy sector in the absence of mitigation actions, however details of these assumptions and how they are modelled have not been disclosed in the INDC document.

As Indonesia’s INDC sets out a 26% emission reduction by 2020 and 29% emission reduction by 2030 based on a 2010 projected business as usual scenario, at a glance, this seems to imply that the first target was very ambitious, or perhaps that the new one, which adds a further 3% over the next 10 years, is hedging bets. It could also imply that the Government of Indonesia has calculated the variables with extra care and has set a more realistic target. In any case, because inventory and monitoring systems have not been able to estimate progress to date, it is hard to decipher where Indonesia stands with respect to business as usual and where they could go.

Casting more light on this situation in the latest inventory, and outlining in detail the baseline as well as assumptions and modelling underlying it, for each sector, would add credibility to Indonesia’s upcoming Third National Communication to UNFCCC in 2016.

Capitalizing on low hanging fruits

Since forestry emissions (from land and land use change, as well as peat and forest fires) as per Indonesia’s Second National Communication to the UNFCCC of 2010 account for 63% of the emissions profile, a landscape-scale ecosystem management approach, emphasizing the role of sub-national jurisdictions to decarbonize the economy, could be highly relevant to Indonesia. The INDC document describes its strategic approach as recognizing that climate change adaptation and mitigation efforts are inherently multi-sectoral in nature and require an integrated approach. However current on-going efforts, such as the moratorium on the clearing of primary forests, are not enough to curtail rising pressures on land. Increased palm oil production and the recent push for expanding markets for biodiesel, upcoming food security programs which open one million hectares of new paddy fields, and 35 GW of power to be installed by 2019 – much of it coal based, while all important to Indonesia’s growing economy, could threaten Indonesia’s sustainability goals if not managed properly.

Climate Policy Initiative’s protection and production and land management approach (PALM), applied in applied in Central Kalimantan, in collaboration with the University of Palangkaraya, aims to lead the way in this regard by bringing together private, public, and smallholder-farmer stakeholders to unlock a new, collective approach to agriculture that will promote food security, energy security, socially inclusive economic development and environmental sustainability. The project has already identified opportunities to increase profitability and productivity for smallholder farmers through larger scale management in the form of cooperatives. Such opportunities reduce pressure on land, support sustainable development of the palm oil economy, and provide livelihood benefits to the smallholder community. Such initiatives could also potentially lead to quantifiable emissions reductions.

Scaling up climate finance required to deliver the INDC

The Landscape of Public Climate Finance in Indonesia conducted by the Indonesian Ministry of Finance’s Fiscal Policy Agency and CPI found that public climate finance in 2011 reached at least IDR 8.377 billion (USD 951 million). The Government of Indonesia disbursed at least IDR 5,526 billion (USD 627 million) or 66% of those flows. The finance was well targeted, with most of it flowing through to the forestry sector (73%) and laying a strong foundation for decarbonizing the economy through policy development and capacity building.

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