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Five Ways to Build Effective Climate Finance Readiness Programs

October 6, 2015 | and

 

The Green Climate Fund (GCF) will review its first project proposals at its eleventh meeting later this year, just in time for the international climate negotiations at COP 21 in Paris. This important milestone for the Fund comes after it has received USD 10.2 billion of initial contributions as part of developed countries’ commitment to mobilize $100 billion climate finance per year by 2020 from public and private sources. The impact for developing countries could be significant, with countries receiving substantial funding from the GCF to combat climate change and protect its infrastructure and people from its effects.

However, this promising start is only half the battle. Countries also need systems in place to absorb money, mainstream climate change considerations into national policies, and coordinate across government and partners to build a good project pipeline to channel funds effectively and to mobilize more public, private, domestic and international resources.

To respond to this need, a number of climate finance readiness programs from international actors have emerged in recent years, including a Readiness and Preparatory Support Initiative under the GCF itself and the Climate Finance Readiness Program run by GIZ and KfW and commissioned by Germany’s Ministry for Economic Cooperation and Development. For example, Vietnam, with support from GIZ, is working with the Ministry of Planning and Investment on coordinating and assessing international climate finance, building capacity, and kick-starting a process that in the end will support the country to fulfill the direct access option of the GCF.

CPI has worked to assess these types of approaches in a new paper that measures mobilization of finance from technical assistance and climate finance readiness support, based on detailed analysis of five GIZ technical assistance programs. Below we draw out five early lessons on how international actors and recipient countries can maximize the impact of their readiness programs:

1. Strong coordination of readiness support programs by recipient countries will likely be more cost-effective and raise more climate finance. With a number of readiness support programs starting to operate in single countries, caution needs to be taken to avoid overlap and overburden on recipient countries. Readiness support from multiple partners is usually justified due to the range and volume of needs. But strong direction and coordination has to come from recipient countries themselves so that support does not become fragmented. The GCF and other providers of readiness support are already making efforts to coordinate their support but systematic, recipient-led approaches could ensure countries get the most out of the process. On their side, donors can consider co-financing existing programs as the Czech Republic did with the GIZ program.

2. Readiness programs can support countries to build the necessary frameworks and institutions to both absorb international climate finance and channel domestic finance. Countries need to combine a vision for low-carbon and climate-resilient growth with a focused and realistic implementation plan in which the role of both domestic and international stakeholders is clear. Readiness support can help countries to develop these visions, carry out planning, integrate GCF financing into planning frameworks and build institutions that can absorb the funding. Readiness support providers should strive for a stable and long-term in-country presence to support this.

3. Readiness programs need to provide different types of support to help governments to mobilize different sources of finance. In many markets, governments are looking for ways to combine finance from public and private actors to achieve their policy goals. This requires different types of support from readiness programs, e.g. support to meet the institutional and fiduciary requirements to access international climate finance; technical assistance to support the design of financial incentives and national mechanisms that can mobilize domestic public finance; and advice on legal frameworks, building attractive markets, and developing project pipelines to unlock private investment.

4. Technical capacity building organizations should coordinate closely with development finance institutions. Doing so will not only increase countries’ abilities to absorb GCF funds but also give them a pipeline of climate-relevant projects to channel those funds to. Readiness support can work to bring on early stage ideas and develop a more complete and strategic flow of the kind of finance-ready projects that financial cooperation partners are typically looking for.

5. Mainstreaming climate change into national, subnational and sectoral planning, polices and budgets builds policymakers’ capacity and improves mobilization of domestic and private finance. Mainstreaming can encourage governments to divert resources from high-carbon and inefficient alternatives to climate-compatible interventions and supports the development of policies that help to mobilize private investment. By revealing more clearly how finance is flowing it can also provide donors with the opportunity to align their activities with national policies and priorities.

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