Latest update on climate finance

The International Institute for Sustainable Development (IISD) provides the May update on global developments in climate finance.

 

May 2016 Climate Finance Update: Calls for Adaptation Funding, Attention to Climate Risk

A number of international meetings that convened in May 2016 included a focus on climate finance. Carbon pricing continued to receive attention, alongside climate change planning and financing in Africa. Calls were also made to pay increased attention to the growing ‘adaptation finance gap,’ and climate and disaster risks, including in investments. A number of resilience projects received funding, and development banks and climate funds organized readiness workshops.

In the Paris Agreement, adopted by 195 UN Member States in December 2015, countries agreed to make “finance flows consistent with a pathway towards low greenhouse gas (GHG) emissions and climate-resilient development.” Developing countries will receive financial resources for both mitigation and adaptation actions, while developed countries are expected to continue to lead in mobilizing climate finance from a variety of sources, with public funds playing a significant role in reaching the previously agreed US$100 billion annual target by 2020. Monthly IIDS RS Climate Finance Updates aim to help track multilateral financing to support the finance goal agreed under the UNFCCC, which will in turn contribute to the implementation of Sustainable Development Goal (SDG) 13 (Take urgent action to combat climate change and its impacts).

Meetings Call for Increased Momentum for Climate Action and Enhanced Access to Climate Finance

In May, a number of meetings of relevance to climate finance took place. The Climate Action Summit 2016 was co-hosted by the UN Secretary-General, the Heads of the World Bank and the Global Environment Facility (GEF), and a number of major global non-state actor platforms and organizations. The Summit, which took place in Washington D.C., US, brought together hundreds of state and non-state actor representatives. The aim of the event was “to continue building momentum and partnerships for global action to address climate change” after the Paris Agreement signature ceremony held in April in New York, US, and, in particular to “deepen and expand the action coalitions of government, business, finance, philanthropy, civil society and academic leaders” launched at the New York 2014 Climate Summit.

The Asian Development Bank (ADB) held its 49th Board of Governors’ Annual Meeting, from 2-5 May, where ADB President Takehiko Nakao described climate action as fundamental to Asia’s sustainable development, stressing the importance of the private sector and “other cofinanciers” in delivering the finance and new technologies needed, and noting that the Bank has “pledged to double annual climate financing to U$6 billion by 2020 as evidence of its commitment to action.”

On the sidelines of the annual ADB meeting, ADB and the Asian Infrastructure Investment Bank (AIIB) signed a memorandum of understanding (MoU) on further cooperation, including cofinancing. At the launch, ADB President Nakao said the MoU would help strengthen cooperation between the two banks in promoting sustainable growth, reducing poverty and combating climate change in the region. Simultaneously, in Germany, the ADB and the German Federal Ministry for Economic Cooperation and Development (BMZ) released the ‘Frankfurt Declaration,’ in which the two entities express their intent to launch the ‘Asia Climate Finance Facility’ in 2017. The Facility will assist developing countries in Asia and the Pacific through new and innovative cofinancing measures, including guarantees and climate risk insurance, to support the implementation of nationally determined contributions (NDCs).

During its 2016 Annual Meetings, from 23-27 May, the African Development Bank (AfDB) reaffirmed its commitment to mobilizing resources to help African countries adapt to, and mitigate, climate change, in line with its 2013-2022 Strategy. Noting that the current climate finance architecture “is not providing the finance Africa needs,” AfDB President Akinwumi Adesina called for more to be done to increase the region’s access to climate finance.

The UNFCCC held its annual intersessional meetings in Bonn, from 16-26 May, during which a number of finance-related in-session workshops and side events were held. A workshop on long-term climate finance in 2016 focused on enhancing the understanding of adaptation finance, including: needs and the role of international cooperation and support; scaling up finance; and enhancing transparency. A workshop on the financing and use of the Clean Development Mechanism (CDM) by international climate finance institutions heard a number of presentations on the topics of: experience in financing CDM projects; and exploration of barriers and opportunities for utilizing the CDM to support climate financing activities. A workshop on linkages between the Technology Mechanism and the Financial Mechanism of the Convention sought to enhance understanding of these linkages, including for enhanced coherence and synergies between the Technology Mechanism and Financial Mechanism, and enhanced cooperation and collaboration between Technology Executive Committee (TEC), the Climate Technology Centre and Network (CTCN) and the operating entities of the Financial Mechanism.

Climate finance-relevant side events at the Bonn intersessionals included those on: ‘Financing Adaptation and Resilience Through Fossil Fuel Subsidy Reform and Fuel Duty,’ organized by the International Institute for Sustainable Development (IISD); and ‘Measuring National REDD+ Performance for the Promise of Results-based Finance,’ organized by the Center for International Forestry Research (CIFOR) and the Friedrich Schiller University Jena of Germany.

Closing the month, the Group of Seven (G7) Summit convened in Ise-Shima, Japan. In their declaration of 27 May, the G7 leaders, inter alia: recognize the steady progress toward achieving the US$100 billion climate finance goal by 2020 “in the context of meaningful mitigation actions and transparency on implementation”; encourage other countries to provide or continue to provide and mobilize climate finance for developing countries; call on the multilateral development banks (MDBs) and “development financial institutions” to mainstream climate action across all development strategies; express their readiness to further promote the relevant initiatives on climate risk insurance, early warning systems and renewable energy in Africa; welcome the involvement of the private sector, sub-national entities and others through the Lima-Paris Action Agenda (LPAA); express their commitment to work together for the adoption of a Global Market-Based Measure (GMBM) under the International Civil Aviation Organization (ICAO); recognize the importance of mitigating emissions of short-lived climate pollutants (SLCPs); and support the adoption of an ambitious Montreal Protocol hydrofluorocarbon (HFC) phase-down amendment in 2016.

Carbon Pricing, Results-based Financing Initiatives Show Growth, Impact

The month of May saw a number of developments and announcements in the area of carbon pricing and results-based financing, including in the waste and forest sectors.

Announcements at the Partnership Assembly of the World Bank’s Partnership for Market Readiness (PMR), held in Lima, Peru, in April 2016, included the allocation of US$6 million grants to Jordan and Peru, each, for the implementation of carbon pricing systems, and the joining of Sri Lanka to the more than 30-country Partnership.

The World Bank and Ecofys launched the ‘Carbon Pricing Watch 2016’ as an advance brief of their ‘State and Trends of Carbon Pricing 2016′ report, to be launched later in the year. The brief provides an overview of developments and prospects in carbon pricing at the international, regional, national and subnational levels, and among corporations. It finds that, in 2015, funds raised by governments from emissions charges totaled US$26 billion, demonstrating a 60% increase from 2014. The brief concludes that “challenging international carbon market has not stopped the development of domestic carbon pricing initiatives,” with existing initiatives covering the equivalent of 12% of global greenhouse gas (GHG) emissions.

The second auction of the World Bank’s Pilot Auction Facility for Methane and Climate Change Mitigation (PAF), held on 12 May, saw 21 companies participate in a pilot online auction for the right to sell carbon credits from waste disposal-related methane reductions. The auction allocated US$20 million of climate funds to reduce emissions by an equivalent of 5.7 million tonnes of carbon dioxide (CO2) by 2020, which according to the World Bank equals to taking 1.2 million passenger vehicles off the roads for a year.

On forest-related results-based payments, the Inter-American Development Bank (IDB) announced it will act as the delivery partner for a U$5 million grant from the Forest Carbon Partnership Facility, to help Guatemala in preparing its national strategy for Reducing Emissions from Deforestation and Forest Degradation (REDD+ strategy), as part of its NDC.

CIFOR wrote on a forthcoming study that examines the institutions and actors bearing the costs of sub-national REDD+ initiatives across the tropics, which finds that these “are bearing financial burdens, … which might threaten the scheme’s viability to scale up in the coming years.” The study finds that “that 84% of subnational government institutions involved in the REDD+ initiatives studied are putting more in than they are getting out,” which its authors say may be related to these actors “positioning themselves to capture funding streams for REDD+ or because they recognize the local benefits of forest conservation.” CIFOR also reported on a study that examined seven Asian countries’ intended NDCs (INDCs) and found that most of these “neglected to acknowledge the potential of the private sector to contribute to national climate targets related to mitigation through land use.”

In other forest-related news, Rwanda, which has set a target of covering 30% of its landmass by forests by 2020, will receive a US$250,000 grant from the AfDB and the World Bank under the Climate Investment Funds’ (CIF) Forest Investment Program (FIP) for the preparation of its national-level FIP investment plan. The investment plan will result in an agroforestry action plan through 2020, and analyses of national forest policies and strategies, among others.

More Financing and Better Measuring Needed

A study released by the Overseas Development Institute (ODI) seeks to address the challenges related to measuring public climate change finance in Africa, which include limited information on actual expenditure, barriers to implementation related to the national budget classification, and the fact that “in many developing countries a significant amount of international funding does not pass through the national budget.” The study examines public spending on climate change in four African countries (Ethiopia, Ghana, Tanzania and Uganda), including to what extent it responds to national climate change policy and related institutional demands. Based on these case studies, the report presents lessons from policy development, institutional strengthening, local delivery of climate change finance and the monitoring of public finance.

Growing Adaptation Finance Needs Get in the Spotlight

Two publications launched in May warned of the rising costs of adaptation and lack of preparedness for increased climate change-related disasters. A report by the UN Environment Programme (UNEP) on the ‘adaptation finance gap’ found that the cost climate change adaptation in developing countries could be four to five times greater than previously estimated, rising to US$280-500 billion per year by 2050. A World Bank report titled ‘The Making of a Riskier Future: How Our Decisions Are Shaping Future Disaster Risk’ calls for an approach to risk assessments that takes into account extremely rapid changes in global disaster risk. The report suggests that “annual total damages from disasters have been increasing for decades and models show that population growth and rapid urbanization could put 1.3 billion people and $158 trillion in assets at risk from river and coastal floods by 2050.”

In addition, the World Bank reported on the multi-stakeholder Africa Climate Business Plan (ACBP), launched in November 2015, which aims to increase adaptation to climate change in a dozen priority areas through ‘strengthening, powering and enabling’ resilience. It notes that the current levels of adaptation funding, US$3 billion per year, are insufficient to meet current needs, and that funding levels are not increasing at the rate necessary for matching future needs. The ACPB’s implementation has price tag of US$19.3 billion by 2020, US$8.5 billion of which is expected to come from the International Development Association (IDA) and the rest from a variety of sources.

Projects to Enhance Resilience Receive Support, Deliver Results

In May, projects in the Balkans, Ghana and Haiti that aim to support increased resilience to disaster- and climate-related risks received support. Development banks reported on resilience project results in the Caribbean and the Pacific.

In Bosnia and Herzegovina, Montenegro and Serbia, grants from the GEF and the Special Climate Change Fund (SCCF) totaling US$8.7 million will support the countries’ West Balkans Drina River Basin Management Project that will enhance rational and equitable management of the river basin while protecting the environment, including by helping the participating countries to cope with climate change-related floods and droughts.

The Northern Savannah Zone of Ghana, characterized by vulnerability, low climate resilience and high poverty, will benefit from a US$12.7 million GEF grant that will support scaling up of sustainable land and water management (SLWM) interventions in selected watersheds and forest fringe communities of the region.

In Haiti, a US$3.5 million grant from the Caribbean Development Bank (CDB) will cover the country’s catastrophe risk insurance premium (covering earthquake, tropical cyclone and excess rainfall policies) for the coming year, marking the fourth year that Haiti receives such support.

Feature stories by the CDB and World Bank explain how: a community-based climate and disaster risk project in the Solomon Islands is supporting communities’ resilience through provision of clean water access; the CBD’s support to climate change adaptation and mitigation initiatives and capacity building projects increased in 2015.

Calls for Increased Attention to Climate Risk in Investments

Climate risk in investments received attention in May, with the Asset Owners Disclosure Project (AODP) releasing a report that found “growth in low carbon investment and support for climate resolutions but little progress on stranded asset risk.” The AODP, an independent not-for-profit organization, finds that “a fifth (97) of the world’s 500 biggest investors with $US9.4 trillion in funds are taking tangible action to mitigate climate change risk,” but “very few investors are acting on warnings… that climate action could leave fossil fuel and other high-carbon investments as worthless stranded assets.”

The Center for International Climate and Environmental Research – Oslo (CICERO) launched ‘CICERO Climate Finance’ as a “meeting place for climate scientists and leading global investors to improve the understanding of climate risk.” The center will work with investors to improve the flow of information on climate risk, and develop tools to incorporate climate risk in long-term investments that are “tailored to investors’ needs and inspired by the latest climate science.”

Green Buses Receive Funding in Georgia, Climate Innovation Center Launches in Ghana

In other project financing news, the European Bank for Reconstruction and Development (EBRD) announced a €27 million sovereign loan to Georgia for the acquisition of 200 compressed natural gas (CNG) buses for the City of Tbilisi as part of a broader public transport mobility project. The EBRD loan is supported by a capital grant of up to €7 million from the Eastern Europe Energy Efficiency and Environment Partnership (E5P).

Ghana will become host to the seventh World Bank-supported Climate Innovation Center (CIC), which will offer “seed financing, policy interventions, network linkages, and technical and business training to new enterprises in the climate change space.” Other CICs are located in the Caribbean, Ethiopia, Kenya, Morocco, South Africa and Viet Nam.

Climate Funds Provide Training for Readiness, Explore Climate Science’s Contribution

In May, MDBs and climate change funds reported on climate financing-related activities, organized workshops, and called for attention to the synergies between climate science and climate financing.

The CIF published open data on the results of its Clean Technology Fund (CTF) and Scaling up Renewable Energy Program (SREP). The open data resource “provides insight into how much co-financing CIF dollars are expected to leverage” and enables users to browse data based on countries, regions and MDBs.

The EBRD and EIU reported on their 2015 activities through the ‘EBDR Sustainability Report 2015,’ which includes a section on climate impact, and the ‘EIU Outside the EU’ publication, which includes a section on climate action. [EBDR Sustainability Report Section on Climate Change] [EIB Report Outside the EU]

The ADB’s Green Bonds Newsletter and Impact Report 2016 provides information on the Bank’s green bond commitments by country and by sector, and green bond issuance to date.

The GCF reported on its ‘Readiness Week,’ which took place in April 2016, and included: interactive working sessions with presentations on project ideas and priorities, and feedback provided by peers and GCF technical leads; and full-day sessions on gender and South-South exchange. The GCF also organized a briefing during the May Bonn Climate Change Conference where it, inter alia, articulated its ‘post-Paris vision,’ which entails “high-quality, ambitious funding proposals to scale up action under the Fund and incite the necessary paradigm shift.”

During a visit to the GCF headquarters by the Intergovernmental Panel on Climate Change (IPCC) Chair Hoesung Lee, the two entities explored areas for potential collaboration, including in support of the UNFCCC, with IPCC Chair Lee identifying, “a significant gap… with regard to climate science inputs from developing countries,” and GCF Executive Director Héla Cheikhrouhou noting that “improving climate science knowledge at the country level could help improve a country’s assessment of the climate action it needs to take.”

The Adaptation Fund organized a readiness workshop in Casablanca, Morocco, for Francophone Africa that shared best practices in direct access. A second workshop, focused on the Middle East and North Africa region, will be organized in Casablanca, from, 6-8 September. The Fund also reported on two events organized during the Bonn Climate Change Conference, namely the Fund’s Contributor Dialogue and an event titled ‘Adaptation Fund: Helping Countries Adapt to Climate Change through the Range of Flexible Finance Modalities.’ The Adaptation Fund further published the report of the 27th meeting of its Board.

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