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Sources of Climate Finance
This document discusses sources and types of climate financing mechanisms. It outlines key messages on climate finance including the need to address how much funding is required and where it will come from. It then provides an overview of existing global funding mechanisms like the Global Environmental Facility and Adaptation Fund. It also discusses sources of climate finance including private, public, and multilateral sources. The document outlines instruments used to disburse funds like loans, equity, and grants. It notes that most financing supports mitigation efforts while a smaller portion goes to adaptation. Innovative means to leverage more funds are also proposed.
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Introduction to the sources, types, and key messages of climate finance mechanisms.
Identifies key issues and opportunities addressing climate finance needs in Africa.
Overview of global climate finance mechanisms, including GEF, Adaptation Fund, and Green Climate Fund.
Discusses the investment requirements in developing countries by 2030.
Identifies four major funding sources and estimates global climate funding.
Details of various financial instruments used for climate finance disbursement primarily for mitigation.
Highlights how climate finance is allocated for adaptation and mitigation efforts.
Proposes innovative methods to enhance and leverage finance for climate actions.
Summarizes the need for public sources and varied financing to support climate initiatives in Africa.
Concludes presentation and invites discussions and questions.
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Sources of Climate Finance
- 1. Sources and Typesof Climate Financing Mechanisms Ms Wairimu Mwangi Green-Next Sustainability Ltd Presented at the ACX Executive Climate Change and Carbon Trading Course Workshop held at Kenya Forest Research Institute (KEFRI)
- 2. Outline: 1.Key Messageson Climate Finance 2.Climate Finance Overview 3.Investment Needs 4.Sources of Climate Finance 5.Instruments of Disbursement of Climate Finance 6.Intended Uses for Climate Finance 7.Innovative Means of Leveraging Climate Finance 8.Conclusions
- 3. 1. Key Messageson Climate Finance Key issues to be addressed: •How much CF is needed for mitigation,adaptation, technologydevelopment & transfer & Capacity developmentin African countries? What are the sources of CF? How will resources be effectively disbursed to recipients? How will processes and outcomes be monitored? Climate finance is a major issue in the UNFCCC framework
- 4. Key Messages OnClimate Finance : Opportunities include: •Technology Devlopment& Transfer •Multiplier effects in the economy –employment creation, rise of cottage industries, •Promotion of Green growth •Infrastructure development Opportunities for climate Finance on development
- 5. 2. Climate FinanceOverview The Main Existing Global Funding Mechanisms Global Environmental Facility (GEF) •The financial mechanism created as the operating entity under the UNFCCC convention. •Fund’s replenishment occurs on a fixed 4 year cycle •Focus mainly on mitigation efforts, limited success on Africa (cumbersome administrative and disbursement procedures. •Other funds that are governed by the GEF: Least Developed Countries Fund (LDCF), and the Special Climate Change Fund (SCCF) •They are mainly based on voluntary pledges by donor countries
- 6. Climate Finance Overview Adaptation Fund •Created under the Kyoto Protocol of the UNFCCC. •This fund is financed by 2 per cent of the Certified Emission Reductions (CERs)issued for the Clean Development Mechanism (CDM) activities. •Main focus is assisting developing countries that are a party to the protocol to meet the cost of adaptation to climate change impacts. •The operating entity of the Fund is the Adaptation Fund Board supported by the GEF as the secretariat and World Bank as a trustee
- 7. Climate Finance Overview Multilateral Funds World Bank •Climate Investment Fund (CIF)mainly focussed on mitigation initiatives and the •Pilot Program for Climate Resilience (PPCR) focussed on adaptation initiatives. PPCR fund was driven by the G8 Plan of action on climate change in 2005. The fund is administered mainly through the provision of concessional loans rather than through grants
- 8. 2. Climate FinanceOverview The Cancun Agreements for more adequate, sustainable and Predictable financing •Finance: •“Fast Start” Finance of $30 billion (2010-12) Parties to submit information to UNFCCC annually on resources provided and how to access them The disbursed funds so far are about $6 billion only: •Mobilize Long-term Finance of $100 billion per year by 2020 Variety of sources : public, private, bilateral, and multilateral -“balance for adaptation and mitigation- Additional funding Significant share of multilateral funding for adaptation should flow through Green Climate Fund
- 9. 2. Climate FinanceOverview •Decision to establish Green Climate Fund: –“accountable to and under guidance of”COP To support mitigation, adaptation, capacity development and technology devpt& transfer •Provisions for reforming the Clean Development Mechanism (Carbon markets for developing countries)
- 10. 3. Additional investmentneeds in developing countries, by 2030 Source World Bank 2010
- 11. 4. Sources OfClimate Finance Sources of funding: There are 4 major sources: 1.Private CDM & Carbon Offset markets 2. Public (official aid and policy money) 3. Global Capital Markets ( institutional investors, high-net worth individuals and lending institutions) 4. Multilateral Uses of funding: Enablingpolicies, Legislations, institutions & markets -adaptation and mitigation Catalyzetransformational private & public investments & devptprograms. Low-carbon technologies (renewable energies, energy efficiency in industry, transport, buildings Terrestrial carbon(agriculture and forestry) Climate resilience practises(agric...) Supportresearch, development & deployment of new technologies
- 12. Sources Of ClimateFinance •Climate policy initiative estimates global climate funding at around USD 97 billion. Private Sources (Equity & Debt) USD 55B Public sector USD 21B Multilateral sources USD 20B Carbon Markets USD 2B
- 13. 5. Instruments OfDisbursements Of Climate Finance •LOANS About USD 74-87 billion out of USD 97 billion, can be classified as investment. •Market rate Loans–are about USD 56 billion: USD 18 billion by bilateral and multilateral agencies like IFC while USD 38 billionby the private sector. •Equity -USD 18 billionof which USD 16 billion by the private sector. •Concessional loans -About USD 13 billion typically provided by bilateral and multilateral banks •AID The remainder of Climate Finance between USD 8 and 21 billion. This is comprised of policy incentives, risk management facilities (USD 1 billion), carbon offset flows (USD 2 billion) and grants (USD 4 billion).
- 14. 6. Uses OfClimate Finance •MITIGATION EFFORTS The large majority of climate finance (USD 93 billion out of USD 97 billion) is used for mitigation measures. Mostly for capital investments in mitigation measures like renewable energy. •Most of the financing (USD 55 billionout of USD 93 billion) -from the private sector in the form of capital investment. •Bilateral and multilateral institutions -USD 19 billion and USD 14 billion respectively. •Funds contribute USD 2.4 billion. •The offset market provides USD 2.2 billion of incremental cost financing. •Voluntary / philanthropic contributions are estimated to provide USD 240 million, slightly more than their contribution to adaptation.
- 15. Uses Of ClimateFinance Adaptation: •Adaptation receives a small share of about USD 4.4 billion, •Adaptation is predominantly financed through bilateral institutions (USD 3.6 billion out of USD 4.4 billion), •Multilateral institutions (USD 475 million) and •Voluntary / philanthropy (USD 210 million). •A relatively small share (USD 65 million) is provided by dedicated funds
- 16. 7. Innovative MeansOf Leveraging More Finance •International transport levies •Concessional debt •Auctions of domestic emission allowances •Create new investment vehicles (green bonds, green venture funds) •More stringent commitments for developed countries under the KP to generate additional demand for credits from CDM and other mechanisms •Expand the 2 per cent levy on CDM contribution to the adaptation fund to include other mechanisms such as the Joint Implementation mechanism (JI) and the Emissions trading mechanism
- 17. 8. Conclusion FinancialMechanisms suitable for African Countries should mainly emerge from Public sources in form of Aid and the remainder from a mix of private, bilateral and multilateral sources
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