Bilateral Finance Institutions and Climate Change

Transcription

1 A Mapping of 2011 Climate Financial Flows to Developing Countries Bilateral Finance Institutions and Climate Change

2 Copyright United Nations Environment Programme, (year2012) This publication may be reproduced in whole or in part and in any form for educational or non-profit purposes without special permission from the copyright holder, provided acknowledgement of the source is made. UNEP would appreciate receiving a copy of any publication that uses this publication as a source. No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the United Nations Environment Programme. Disclaimer The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the United Nations Environment Programme concerning the legal status of any country, territory, city or area or of its authorities, or concerning delimitation of its frontiers or boundaries. Moreover, the views expressed do not necessarily represent the decision or the stated policy of the United Nations Environment Programme, nor does citing of trade names or commercial processes constitute endorsement. ISBN: XXXXXXXXXXXXXX This report is an annual initiative of the United Nations Environment Programme (UNEP) Bilateral Finance Institutions Climate Change Working Group ( UNEP BFI CCWG ), to report on climate change financial flows to developing countries. The UNEP BFI CCWG is comprised of Agence Française de Développement (AFD), Japan International Cooperation Agency (JICA), KfW Entwicklungsbank (Development Bank, Germany), Nordic Environment Finance Corporation (NEFCO), and UNEP. It is open to other like-minded finance institutions wishing to take part. We would like to acknowledge the Stockholm Environment Institute (SEI) for its previous contributions to the mapping report and for providing the structure and background for this annual report. This report was prepared by UNEP consultant, Rachel Hodas, for the BFI CCWG. Please address questions to rachel.hodas@unep.org and eric.usher@unep.org.

3 Table of Contents About the UNEP BFI CCWG 4 List of Abbreviations 5 1. Introduction 6 2. Global Climate Finance Climate Finance to Developing Countries Total BFI climate change financial flows Regional distribution of BFI climate finance Mitigation finance Adaptation finance The use of financial instruments Investment by Bilateral Finance Institutions in Carbon Finance Case Studies Nordic Partnership Initiative Peru pilot programme KfW Amazon-Fund as a REDD-Pilot JICA - Expanding Rural Electrification by Applying CDM AFD Solar energy in Morocco Summary 27 Appendices 28 Appendix I Climate Finance : Definitions and Terminology 28 Appendix II Countries receiving climate finance from participating BFIs 30 Appendix III Climate finance to Eastern and Southern Europe 31 Appendix IV BFI finance data by region, sector, financial instrument 32 Appendix V Data collection survey 38

4 About the UNEP Bilateral Finance Institutions Climate Change Working Group (UNEP BFI CCWG) The UNEP Bilateral Finance Institutions Climate Change Working Group originated from a high-level workshop on bilateral financing for climate change convened in January 2009 at UNEP in Paris. Present members of the BFI CCWG are UNEP and four international finance institutions: Agence Française de Développement (AFD), Japan International Cooperation Agency (JICA), KfW Entwicklungsbank (Germany s Development Bank), and Nordic Environment Finance Corporation (NEFCO). Bilateral, for this Group, means that beneficiaries or clients of these institutions are not direct shareholders. These financing institutions act, and provide financing, on behalf of their respective governments. The purpose of the Group has been to provide a framework for members to discuss and share their experiences, leading to strengthened policies, tools, procedures, and actions on climate change mitigation and adaptation, as well as to greater visibility of BFI activities and strengthened partnerships among participants. UNEP facilitates the operation of the Group, providing the opportunity for closer interaction and co-ordination of BFIs climate change activities and investment modalities. 4 In its fourth year, this mapping exercise of climate change financial flows to developing countries has become an annual initiative of the BFI CCWG. The financial data reported and analysed in this report is provided by the participating finance institutions through a financial survey and interview process, as part of a growing global effort to make available comparable, transparent and accurate data on financing to address climate change mitigation and adaptation in developing countries.

5 00 List of Abbreviations ADB AFD Asian Development Bank Agence Française de Développement (French Development Agency) KfW LDC KfW Entwicklungsbank (Development Bank, Germany) Least Developed Country AfDB African Development Bank MASEN Moroccan Agency for Solar Energy AF Adaptation Fund MDB Multilateral development bank BFI CDM CER COP CPI DAC DFI EBRD EIB GCF IDB IDFC IFC Bilateral Finance Institution Clean Development Mechanism Certified emission reductions Conference of the Parties (to the UNFCCC) Climate Policy Initiative Development Assistance Committee (of the OECD) Development Finance Institution European Bank for Reconstruction and Development European Investment Bank Green Climate Fund Inter-American Development Bank International Development Finance Club International Finance Corporation NAMA NCF NeCF NEFCO NOAK ODA OECD SCF TGF UNEP UNFCCC Nationally Appropriate Mitigation Action Nordic Climate Facility NEFCO Carbon Fund Nordic Environment Finance Corporation Nordic Working Group for Global Climate Negotiations Official development assistance Organisation for Economic Co-operation and Development Strategic Climate Fund Baltic Sea Region Testing Ground Facility (of NEFCO) United Nations Environment Programme United Nations Framework Convention on Climate Change JI Joint Implementation USD United States dollars JICA Japan International Cooperation Agency WB World Bank 5

6 01 Introduction For both moral and economic reasons, it is now well accepted that climate finance, for both mitigation and adaptation, plays a crucial role in supporting developing countries to pursue low-carbon development, meet projected energy demand and to avoid the possible catastrophic effects of climate change. This climate finance is both public and private and the public funds are channelled through a variety of institutions, very notably bilateral and multilateral finance institutions. Public funding is necessary to incentivize and mobilise large-scale private investment and to encourage research, development and deployment of new technologies. This report maps the public climate finance flows of the UNEP Bilateral Finance Institutions Climate Change Working Group (UNEP BFI CCWG see p. 2) to developing countries in an effort to be part of the solution to the global climate change problem. Report objectives For the past four years, members of the UNEP BFI CCWG have mapped their climate change finance flows to developing countries in an effort to transparently disclose these figures and to demonstrate their future potential as vehicles for the delivery of significant amounts of climate finance. Building on these prior efforts, [1] this report again finds that UNEP BFI members channel significant amounts of climate finance for both mitigation and adaptation. By annually and collectively reporting on climate finance, this Group aims substantively to demonstrate the size and nature of its contribution to global financial flows for climate change to developing countries, its contribution at least by order of magnitude relative to global climate change financial flows, and methodologically to contribute to global efforts on tracking these flows by disclosing its data collection and reporting methods, definitions and challenges. Section 2 of this report demonstrates where the BFI CCWG members fit in the global landscape of climate finance and the challenges of determining that amount. Section 3 summarises total climate financing to developing countries from the UNEP BFI CCWG, with a breakdown by mitigation, adaptation, region, sector and financial instrument. Section 4 presents carbon finance and related initiatives that benefit developing countries. Section 5 provides case studies from the member institutions. [1] The mapping of 2008 data was published in 2009 as an SEI Working Paper: Atteridge et al., 2010, Bilateral Finance Institutions and Climate Change: A Mapping of Climate Portfolios (hereinafter Atteridge et al (2009) ). Available online at 6 The mapping of 2009 data was published as UNEP, 2010, Bilateral Finance Institutions and Climate Change: A Mapping of 2009 Climate Financial Flows to Developing Countries (hereinafter UNEP (2010) ), available online at

7 Methodology Challenges for reporting climate change finance As detailed further in Appendix I, mapping the amounts of climate financing and the mechanisms through which this financing flows is rife with terminological and methodological challenges. Globally, there is no standard definition of what is counted toward climate finance, it is conceptually difficult to distinguish between funds that support mitigation, adaptation or both, and it is difficult to track funds committed from source through to disbursement. However, following this UNEP BFIs regular mapping initiative some efforts have been recently made by financial institutions themselves and also by think tanks and international organisations to give better information on climate financial flows, though not harmonized. In this field, we can mention: the Mapping of Green Finance Delivered by IDFC (International Development Finance Club, a group of 19 national and international financial institutions including JICA, KFW, and AFD) that reported financial flows from its members for mitigation, adaptation and environment in 2011 based on a positive list methodology for tracking (list of types of projects or sectors that contribute to mitigation, adaptation and environment), the Joint MDB Report on Mitigation Finance 2011 that reported financial flows from a group of Multilateral Development Banks (AfDB, ADB, EBRD, EIB, IDB, WB and IFC) for mitigation using an activitybased typology of mitigation tracking, the First-Ever Comprehensive Data on Aid for Climate Change Adaptation OECD that reports on member countries climate finance for both mitigation and adaptation based on detailed projectlevel reporting using the Rio marker methodology for tracking, the Landscape of Climate Finance by CPI that reports on climate finance from a range of sources and offers recommendations for improving future data-gathering efforts. This report acknowledges and addresses these challenges by providing clear information about what is and is not included as climate finance in the discussion below and in Appendix I, by disclosing methodological challenges, and by inviting comments on how to overcome these in future reporting. 7

8 Definitions and terminology For the purposes of this report, a working definition of climate finance is as follows: Climate finance is finance flowing to developing countries, including support for mitigation, adaptation, climate policy and capacity-building. Mitigation projects include, in particular, renewable energy projects, energy efficiency and fuel switch, forestry and land use, sustainable urban transport and sequestration projects, and technical assistance and capacity building dedicated to addressing climate change. Adaptation projects imply that part of the project is dedicated to improve climate resilience in the context of climate vulnerability, considering both impacts from climate change as well as climate variability. Also included is direct budgetary support for climate policy or action plans. To determine what qualifies as mitigation and adaptation, the UNEP BFI CCWG is guided by the Rio markers [2] for climate change mitigation and adaptation, and uses a positive list approach (see template). This is coupled, for some member institutions, with a more restrictive but totally compatible accounting method for mitigation based on a carbon footprint measurement of the effects of projects. Where funds support an activity with both an adaptation and mitigation benefit, the UNEP Working Group members reported half of the total amount under mitigation and half as adaptation. Although this methodology seems both a good and practical way to demonstrate the order of magnitude of climate flows and has the potential to become a global standard, it doesn t extinguish debate on the definition of climate finance, what constitutes a climate project, or what should be counted in terms of climate finance. It is further acknowledged that future refinement of this definition must consider that many projects with clear climate relevance may in fact have a high carbon footprint and/or contribute to an overall new increase in greenhouse gas (GHG) emissions. To illustrate, energy efficiency or sustainable transport projects are not climate friendly to the extent that they result in a net increase in GHG emissions, even if causing a reduction in emissions intensity. The difference between climatespecific finance and climate-relevant finance is also discussed in Appendix I. In sum, this mapping exercise assumes that providing data on financial flows for climate change is essential despite a lack of standardisation. As work continues on developing definitions and reporting methods that allow data to be compared across institutions, it is necessary to be explicit about what is included as climate finance and what is not. 8 [2] Information on the Rio Markers is available at

9 Data collection Data related to activities financed by the Working Group members was collected through a financial survey. The data collection tool was co-developed by the members, and organises information regionally, by sector, and by financial instrument. The raw data used for analysis in this report is summarised in Appendix IV, while the data collection survey tool is available in Appendix V. Data related to other stakeholders has been collected from publically available sources, appropriately cited throughout the report. All financial data is reported in millions of United States dollars (USD), using the exchange rate provided in Appendices III and IV, unless otherwise indicated. The data assessed in this report is based on funds committed in Please refer to Appendix I for a discussion of the scope of and reason for reporting committed funds. In this year s report Eastern and Southern Europe figures have been split into two categories countries on the OECD DAC list for ODA, which are included in the mapping, and the countries not on the OECD DAC list for ODA, which are presented solely in the table in Appendix III. In the first year of this annual mapping Eastern and Southern Europe were included in the sectoral breakdown of climate finance flows, while in the last two mappings this region was excluded entirely. In addition, as EIB is no longer a member of this Working Group, its figures have been excluded from previous year s data to make accurate comparisons with this year s data. 9

10 02 Global Climate Finance An annual objective of this report has been to try and demonstrate the significance of the climate finance provided by the members of the UNEP BFI CCWG within the larger landscape of global climate change finance flows. However, this has proven to be a difficult task, as has been well established in previous reports, given the absence of a globally accepted definition of climate finance, methodological challenges, and transparency issues; and despite new global efforts made by DFIs on this issue. Attempting to surmount these difficulties, the Climate Policy Initiative produced a report on the complex landscape of global climate change finance in late Their report, The Landscape of Climate Finance [3], and a follow-up with updated data [4], introduce a spaghetti diagram that presents estimated figures on climate change financial flows from a large span of both public and private sources. Of the USD 77 billion flowing from DFIs (includes bilateral, multilateral, and national finance institutions), this report demonstrates that approximately USD 10 billion (13%) is attributable to the members of the BFI CCWG, which is a significant amount. Section 3 now presents a mapping of the UNEP BFI CCWG climate change financial flows for [3] Buchner, B. et al, 2011, The Landscape of Climate Finance, Climate Policy [4] Buchner, B. Et al, 2012, The Landscape of Climate Finance 2012 Update, Climate Policy Initiative. 10

11 Figure /2011 climate finance flows (in USD billion) THE CLIMATE FINANCE FLOWS DIAGRAM The Climate Finance Flows Diagram 2012, also known as the spaghetti diagram, illustrates the landscape of climate fi nance fl ows along their life cycle for the latest year available, mostly The width of the arrows in the diagram represents the relative size of the fl ows. CARBON MARKET REVENUES CARBON-RELATED TAXES GENERAL TAX REVENUES $2 $7 NE GO $19 NE DEVELOPMENT FINANCE INSTITUTIONS NATIONAL NE AGENCIES MULTILATERAL BILATERAL CLIMATE FUNDS COMMERCIAL FINANCIAL INSTITUTIONS $77 $47 $23 $32 *Notes: Figures are indicative estimates of annual fl ows for the latest year available, 2010 or 2011 (variable according to the data source). Flows are expressed in USD billions and rounded to produce whole numbers. Estimates spanning multiple years are adjusted to produce annual-equivalent estimates. Where ranges of estimates are available, the mid-point is presented. The diagram distinguishes between incremental costs, that is, fi nancial resources that cover the price di erence between a cheaper, more polluting options and costlier, climate-friendly ones and do not need to be paid back and capital investment, which are tangible investments in mitigation or adaptation projects that need to be paid back. Categories not representing capital investment, or a mix of capital investment and incremental costs, are incremental costs only. The group of National Finance Institutions includes Sub-regional entities. Most data presented relates to commitments in a given year due to limited availability of disbursement data. SOURCES AND INTERMEDIARIES INS TRUMENT S CHANNELS USES NE 32 POLICY INCENTIVES RISK MANAGEMENT CARBON OFFSET FINANCE GRANTS LOW-COST PROJECT DEBT PROJECT-LEVEL MARKET RATE DEBT $5 $13 $53 $57 $14 ADAPTATION REDD NE INSTITUTIONAL INVESTORS <$1 NE Ve VENTURE nture CAPITAL, te E Capital, PRIVATE Priva EQUITY, $2 & INFRASTRUCTURE FUNDS $17 PROJECT-LEVEL EQUITY BALANCE SHEET FINANCING $22 DIFFERENT DISBURSEMENT CHANNELS $350 MITIGATION PROJECT DEVELOPERS $104 $214 NE CORPORATE ACTORS $70 HOUSEHOLDS $32 DEBT PORTION KEY PUBLIC MONEY PRIVATE MONEY PUBLIC FINANCIAL INTERMEDIARIES PRIVATE FINANCIAL INTERMEDIARIES OFFSET MONEY FINANCE FOR INVESTORS & LENDERS CAPITAL INVESTMENT CAPITAL INVESTMENT AND INCREMENTAL COSTS NE: Not estimated 11

12 03 Climate Finance to Developing Countries 3.1 Total BFI climate change financial flows In 2011, the members of the UNEP BFI CCWG accounted for nearly 10 billion USD of climate change finance to developing countries. 74% of these funds were allocated to mitigation and 26% to adaptation. While all member institutions provide more financing for mitigation, they all increased the proportion of total climate finance allocated to adaptation this year. The 2011 climate change finance flows represent an overall loss of -27% over 2010 figures, despite an increase in spending from some of the members. Table 1 and Figure 2 give a summary of total climate finance committed from the UNEP BFI CCWG figures include finance flows to OECD DAC countries in Eastern and South Europe; this amounts to USD 410 million for mitigation and USD 2 million for adaptation (see Appendix IV for a detailed regional breakdown by institution). A regional analysis along with a more detailed breakdown for mitigation and adaptation finance is provided in the following sections. Table 1 : BFI climate finance committed for mitigation and adaptation (USD millions) AFD JICA KfW NEFCO Total 2011* Total 2008** Total 2009*** Total 2010**** Change Mitigation % Adaptation % Total % * 2011 figures include finance flows to OECD DAC countries in Eastern and South Europe ** The 2008 figures are taken from Atteridge et al. (2009), Bilateral Finance Institutions and Climate Change: A Mapping of Climate Portfolios (hereinafter Atteridge et al, (2009) ), available online at While the 2008 data included flows to Eastern Europe, these amounts ( 637m for mitigation and 68m for adaptation) have been subtracted from the figures in Table 1, to ensure comparability and that only flows to developing countries are reported. The 2008 data is converted from Euros using the exchange rate of 31 December 2008, consistent with 2009 and 2010 methodology in this report. Finance flows from EIB have been removed from all figures in all years as well, to make the data comparable. *** The 2009 data is taken from UNEP, (2010), Bilateral Finance Institutions and Climate Change: A Mapping of 2009 Climate Financial Flows to Developing Countries, available online at 12

13 Figure Mitigation 2010 Adaptation Total Regional distribution of BFI climate finance Figure Total Regional Distribution of BFI Climate Finance 17% 12% 11% 4% 2% 18% 36% C,E, and SE Asia S Asia W and Sub- Saharian Africa N Africa and W Asia Latin America E and S Europe Transregional Figure 3 presents the total regional distribution of BFI CCWG climate finance. More than half of total 2011 financing was directed to Asia, with a large increase in South Asia from 26% in 2010 to 36%. Financing to Latin America and West and Sub- Saharan Africa staying relatively the same (within a few percentage points in both directions), while financing to North Africa and Western Asia fell 9% from Oceana has disappeared from the scene in 2011, however it received only a fraction of a percentage in 2010; and Transregional financing has remained the same. Countries in Eastern and Southern Europe that receive ODA and are on the OECD DAC list are included in this year s report, and have received 4% of the finance flows. 13

14 3.3 Mitigation finance Accounting for 74% of total climate finance flows in 2011, financing for mitigation decreased 31% from USD 10.8 billion in 2010 to USD 7.4 billion in 2011; however, relative to 2009 figures it remained equal. Figure 4 represents the breakdown of mitigation finance by region for There was a minor increase in finance flows to Latin America and a larger 9% increase to South Asia, now giving it the lion s share of regional finance; alternatively, all other regions saw a decrease in mitigation financing. Figure 4 : Regional distribution of mitigation finance % 6% 2% 14% C,E, and SE Asia S Asia W and Sub- Saharian Africa N Africa and W Asia Latin America Figure 5 provides the sectoral breakdown of mitigation finance. The energy sector received an even more significant amount of the finance from previous years at 62%, a 14% increase from The transport sector received 20% less financing than in 2010, now accounting for 11% of sectoral mitigation finance; JICA spent USD billion less on transport in Policy and legislation finance fell from 11% to 4%, reflected by AFD s finance flows in this sector dropping from USD 722 million in 2010 to USD 236 million. Conversely, the water supply and treatment sector increased from 5% to 12%, due to JICA injecting an additional USD 356 million into this sector from 2010 (accounting for 25% of JICA s mitigation finance). The sector entitled Other is financial sector development. Figure 5 : Sectoral distribution of mitigation finance % 2% 4% 3% 1% 9% 9% 40% E and S Europe Transregional 4% 1% 11% 62% 14 Energy Transport Agriculture Industry >0% Forestry Water supply /treatment Waste Policy & legislation Other sisaster risk reduction Capacity building > 0% Other

15 As the energy sector is recipient of 62% of mitigation financing, it is compelling to further breakdown energy expenditures, which are presented in figure 6. Financing of renewable energy (USD 2.3 billion) fell 6% from 2010 figures, however this is still 26% higher than 2009 spending; and financing of energy efficiency (USD 1.7 billion) increased 12%. It is interesting to note that JICA s energy mitigation spending percentage did an absolute reversal from 2010 (renewable energy 71%, energy efficiency 29%) with renewable energy accounting for 24% and energy efficiency 76% in For the past two reports, AFD has been the only BFI that finances fuel switch and lines of credit (decreased 6% to USD 551 million). Energy sector finance % 5% 7% 51% Renewable Energy Energy efficiency Fuel switch Lines of credit Figure 6 : 3.4 Adaptation finance Accounting for 26% of total climate finance flows in 2011, financing for adaptation decreased 10% from USD 2.9 billion in 2010 to USD 2.6 billion in Figure 7 shows the regional distribution of adaptation spending. Unlike in 2010, adaptation financing to Southern Asia increased significantly from 8% (USD 228 million) to 24% (USD 623 million) in While almost all other regions saw a percentage decrease in adaptation finance, save for a very modest increase in both the Latin American region and Transregionally. Figure 7 : Regional distribution of adaptation finance % 3% 9% 27% C,E, and SE Asia S Asia W and Sub- Saharian Africa N Africa and W Asia Latin America 17% 24% E and S Europe > 0% Transregional 15

16 Figure 8 : Sectoral distribution of adaptation financing % 1% 1% 5% 8% Figure 8 provides a sectoral breakdown of adaptation financing. Although the water supply and treatment sector received USD 100 million less in funding in 2011, the significant USD 1.3 billion it received is a 6% increase in the total adaptation sectorial portfolio, making it 51% of adaptation financing in The waste sector saw a 14% drop to merely 1% of adaptation finance (2010- USD 424 million; USD 19 million), while other disaster risk reduction saw a significant increase from 12% (USD 341 million) to 27% (USD 684 million). The sector entitled Other includes financial sector development and multisectoral democratisation. 27% 2% 1% Energy Transport Agriculture Forestry Water supply /treatment Other sisaster risk reduction Waste Capacity building > 0% 51% Policy & legislation Other 3.5 The use of financial instruments The type of financial instrument used to distribute financing is different amongst the BFIs and can be as important as the total amounts. Table 2 summarises these financial instruments that have been used to deliver climate finance in Figures 9 and 10 demonstrate the instruments for both mitigation and adaptation respectively. Grants for both mitigation and adaptation finance have maintained basically static from Concessional loans for climate finance continue to be the most significantly used financial instrument. However non-concessional loans have been used much more in 2011 (9% increase in mitigation, 10% increase in adaptation). Figure 9 : Financial instruments supporting mitigation activities 18% 3% 6% Grants Concessional loans Nonconcessional loans 16 73% Other

17 Table 2 : Use of different financial instruments Mitigation Adaptation Total Grants Concessional loans Nonconcessional loans Other Total Figure 10 : Financial instruments supporting adaptation activities 12% 1% 25% Grants Concessional loans Nonconcessional loans Other 62% 17

18 04 Investment by BFI in Carbon Finance As has been laid out in previous editions of this mapping report, some members of the UNEP BFI CCWG purchase emissions reductions credits from the carbon market, most often from the Kyoto Protocol s flexible mechanisms: the Clean Development Mechanism (CDM) and Joint Implementation (JI), in addition to their committed climate finance detailed in Section 3. These members all play a carbon brokering role through carbon investment funds. This mapping exercise keeps carbon finance analytically separate from other forms of climate finance. There are various reasons for this, namely that BFIs typically do not invest in these funds, and if they do it is in form of a temporary capital commitment. Furthermore, while carbon finance may strengthen the carbon market through selling emissions reduction units, it does not achieve new climate change outcomes (Atteridge et al (2009) p.22). Of note, also, is the dramatic change facing the current carbon markets. The supply of certified emission reduction (CER) credits far outweighs demand as the largest greenhouse gas emitters do not take part in the markets (America, China, India) and Europe, the largest purchaser, is facing economic crisis. This lack of demand has seen the price of credits plummet. Thus not incentivizing large expenditures in carbon finance at this time. The figures presented here are in total capitalisation in the given fund or facility, they are not given as part of 2011 expenditures. Total investments in carbon funds and financing initiatives established by or involving KfW and NEFCO are summarised in Table 3. Table 3 : Carbon Funds and Financing Initiatives Fund Institutions Total Capitalisation* Post-2012 Carbon Credit Fund KfW (+ others) 125 / 174 USD KfW Carbon Fund KfW 84 / 117 USD NEFCO Carbon Fund (NeCF) NEFCO 165 / 229 USD EIB-KfW Carbon Programme I and II KfW (+EIB) 188 / 261 USD Baltic Sea Region Testing Ground Facility (TGF) NEFCO 35 / 49 USD Nordic Climate Facility (NCF) NEFCO (+NDF) 3X 6 = 18 / 25 USD 18 Nordic Partnership Initiative NEFCO (+NOAK) 4.8 / 7 USD * Reported in millions of Euros/converted from Euro to USD using an exchange rate that is an average of all 4Qs in 2011 (1 Euro = USD); amounts are total capitalization, not per annum.

19 2011 did not see the establishment of any new carbon funds or facilities, but the continuation of all previous initiatives. The carbon funds from KfW are all purchase programmes that acquire carbon credits from various projects in multiple countries; the EIB- KfW Carbon Programme II is aimed in particular at acquiring credits in LDCs and from innovative programmatic approaches. NEFCO continues operations of the NEFCO Carbon Fund provides long term (up to 2020) procurement of carbon credits for public and private participants, the Baltic Sea Region Testing Ground Facility (TGF) a regional carbon finance facility structured as a Public Private Partnership, and the Nordic Climate Facility promotes technological innovation in areas susceptible to climate change. In late 2010, NEFCO established the Nordic Partnership Initiative with the Nordic Working Group for Global Climate Negotiations (NOAK). This pilot programme was launched to support the establishment of nationally appropriate mitigation actions (NAMAs) in developing countries with a particular focus on market readiness activities. The pilot programme in Peru is discussed further in Section 5. 19

20 05 Case Studies 5.1 Nordic Partnership Initiative Peru pilot programme In autumn 2010, NEFCO and the Nordic Working Group for Global Climate Negotiations (NOAK) launched the NOAK-NEFCO (now Nordic) Partnership Initiative to explore and demonstrate how cost-efficient and effective implementation of scaled up nationally appropriate mitigating actions in developing countries within the framework of UNFCCC could be developed. In a bottom-up approach, the Initiative seeks to establish concrete cases to illustrate nationally appropriate mitigation actions (NAMAs), supported and enabled by technology, financing and capacitybuilding. The aim of the initiative is to test and learn how a future market-based mechanism could be designed for providing support for up-scaled mitigation action. This initiative should be seen as input into the UNFCCC framework of exploring new market mechanisms. Its results will serve as a useful input from the Nordic countries to an international learning-by-doing process and hopefully encourage others to take similar actions. The Initiative has enjoyed a high profile internationally in the context of NAMA market readiness activities, and has been presented at an official side event at the COP 16 meeting in Cancún, Mexico (December 2010), the UNFCCC Climate Change Conference in Bangkok (April 2011), the Latin America Carbon Forum, San José, Costa Rica (September 2011) and was formally launched at the COP 17 meeting in Durban, South Africa (December 2011). 20

21 Objectives of the Proposed NPI Programme in Peru The overarching aim of the Pilot Programme is to improve Peru s readiness to benefit from international climate finance and/or the carbon market for supporting up-scaled mitigation action in the waste sector. The readiness activities shall address gaps in data availability and quality and technical and institutional capacity, as well as relevant technical, financial and other barriers to up-scaled mitigation and private sector engagement, including: Collection of updated data on emissions and emission reduction potential; Capacity to oversee and manage waste streams; Capacity to generate and implement waste strategy across different levels of Government and addressing the private sector; Identification of barriers to mitigation action, and proposals for addressing them; MRV system of international standard; Identification of appropriate support instruments for mitigation action, including potential sources of finance and funding, requirements and criteria for support; Relevant institutional arrangements, capacity building and training. The NPI Programme in Peru will consist of a preparation and follow-up stage and entail three phases: 1) Developing a solid waste inventory and identifying options to achieve significant emission reductions in this sector as a readiness activity; 2) Facilitating the development of a comprehensive national waste management strategy with the purpose of assisting the Government of Peru to facilitate the development of targeted policies and measures; and 3) elaborating one NAMA option identifying a measure resulting in substantial emission reductions, detailed list of tasks, institutional procedures including public-private partnerships, allocation of responsibilities and efforts, and funding options. 21

22 The Programme will give special emphasis to exploring opportunities to utilise market-based (crediting) mechanisms in Peru s solid waste sector, implying a results-based approach for provision of future support. However, the Programme itself is not expected to generate verified carbon credits. Broad participation of stakeholders including households, the country s large informal waste sector, industry and NGOs, from an early stage will be crucial. Throughout the Programme, close cooperation with a donor-host-country steering group ( Programme Steering Group ) is foreseen to include NOAK and NEFCO representation. Ultimately, the Pilot Programme should enable Peru to prepare for full-scale waste sector NAMA implementation in accordance with the international regulatory framework (Bali Action Plan, Copenhagen Accord, Cancún Agreements and the outcome of ongoing negotiations) aiming at gaining access to new international climate finance through a variety of sources, including markets. Furthermore, the NPI Programme aims to explore and share valuable lessons on practical issues relating to new climate finance and new carbon market mechanisms under negotiation. It offers a unique opportunity for Nordic countries and Peru in partnership, to pioneer into new support mechanisms for up-scaled mitigation action, act as a model for similar initiatives and share their valuable insights with the global community. 5.2 KfW Amazon-Fund as a REDD-Pilot Conserving forests promotes biodiversity and stabilises the climate to a very significant extent. A key factor for the success of forest conservation is whether or not it will be possible to adopt a pragmatic approach which combines the strengths of the different players to create synergies. Through KfW Entwicklungsbank, Germany is one of the biggest donors for preserving forests and biodiversity worldwide. KfW finances forest conservation through grants, loans, and trust funds; as well as utilising its practical experience and ability to innovate. Since the early 1990s, KfW has provided assistance on behalf of BMZ [5] and, for a few years now, BMU [6] totalling EUR 1.4 billion. 22 [5] German Federal Ministry for Economic Cooperation and Development [6] German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

23 REDD: REDD (Reducing Emissions from Deforestation and Degradation) is motivated in part by the fact that the conservation of forest land can be a comparatively inexpensive way to contribute to climate protection. The basic idea is to assign a quantifiable monetary value to the carbon stored in forests and to thus incorporate the conservation of the forest in economic decisionmaking processes. As simple as this idea may seem, putting it into practice is a significantly more complex undertaking. Payments made for emission reductions enable partner countries to pursue forest conservation as a long-term economic alternative. 23

24 KfW contributes to both the readiness process, as well as to the implementation of REDD. In recent years considerable assistance is being provided for incentive payments and performance-based payment schemes for emission reductions. A new BMZ-financed REDD early movers programme (REM) is rewarding pioneers who have already taken risks and independent action towards mitigating climate change by preserving their forests. The Amazon Fund in Brazil The Brazilian Government set up the Fundo Amazônia (Amazon Fund) in August 2008; in which the Brazilian National Development Bank BNDES took on the role of a voluntary REDD financing mechanism. The principle is simple: if the annual deforestation in the Amazon falls below a defined benchmark value, private and public donors can reward this performance by making payments into the fund. In return, the donors receive documents which confirm the reduction in emissions. The German contribution is made by KfW through Financial Cooperation (FC) and by GIZ [7] through Technical Cooperation. This is only possible on the basis of a REDD carbon accounting model [8] and with the aid of a monitoring system, which is usually satellite based. Both [7] Deutsche Gesellschaft für Internationale Zusammenarbeit [8] For details: brochure Conserving forests to protect our climate page 14 f.on ebank/de_home/i/download_center/pdf-dokumente_ Broschueren/KfW_Waldschutzbroschuere_Eng._BF_ final_ pdf the Brazilian government and nongovernmental organizations operate monitoring systems to reinforce the validity of official statistics. The carbon stored in the tropical forests of the Amazon varies between 50 and 400 tons per hectare. Reliable measurements can only be taken onsite, and are very expensive to carry out for the whole of the Amazon region. Consequently, a simplified method has been adopted in Brazil: a relatively low flat rate of 100 tons of carbon (corresponding to 366 tons of CO2) is assumed per hectare. Brazil is effectively giving away emission reductions, but this significantly reduces the transaction costs. Deforestation in the Brazilian Amazon has declined steadily in recent years, lowering global carbon emissions by more than 2%. Compared to 27,772 km² in 2004, in ,418 km² of forest were cleared. Since 2005, which is when the steady fall in deforestation rates began, Brazil has been able to set the world a good example for successful forest protection as a means of climate protection. 24

25 5.3 JICA - Expanding Rural Electrification by Applying CDM Clean Development Mechanism (CDM) has marked over 4,500 projects registered under the United Nations, while the number of projects undertaken in the Least Developed Countries (LDCs) is very limited. JICA, in order to respond to the geographical gap, promotes rural electrification and poverty alleviation in LDCs as CDM projects. Bhutan and Zambia have expressed their interest in this scheme and both countries, with the cooperation of JICA, convened seminars at the UNFCCC COP15 in Copenhagen in Bhutan has traditionally focused on generating hydropower, a renewable energy source. At the seminar, Deputy Minister of National Environment Commission of Bhutan made an appeal for supplying hydropower to non-electrified remote areas to reduce the use of heating oil and firewood and reduce CO2 emissions while improving people s living and alleviating poverty. The Zambian seminar was attended by the Minister of the Ministry of Tourism, Environment and Natural Resources of Zambia as well as the top management of Zambia Electricity Supply Corporation Limited. Zambia pledged it will work to register the rural electrification initiative as a CDM project. To encourage initiatives for undertaking rural electrification as CDM projects, JICA will support facilitation of emission trading including establishment of carbon credit trading centres. 25

26 5.4 AFD Solar energy in Morocco Morocco has a solar resource that is among the most abundant on the planet and its desert areas are particularly conducive to Concentrated Solar Power CSP technology. Electricity generation with solar concentration is now regarded as a promising solution to produce renewable energy. With only limited energy resources, Morocco today is 97% dependant on sources abroad for its supply. This strong dependence, combined with the upward trend in prices of oil products, imposes a significant burden on the trade balance and budget. The Moroccan government has put in place a regulatory and institutional framework for the promotion of renewable energy. The Moroccan Solar Plan In November 2009, the Moroccan Solar Plan was launched with the objective of developing a minimum solar energy production capacity of 2000 MW by Green electricity produced this way will be directed in to the local market and partly exported to Europe through the interconnection between Morocco and Spain. This project aims to contribute to the economic and social development of Morocco, with respect to the environment. The first phase is the construction of a 500 MW solar power plant about 10 km north-east of Ouarzazate. This addresses the second axis of AFD s energy strategy - to de-carbonize energy production and improve the efficiency of its use. AFD is providing a 100 million loan to the Moroccan Agency for Solar Energy (MASEN) for this project; this represents 14% of total financing for this program. This first phase, the Ouarzazate project, will include the construction of a 150 MW cylindrical parabolic power plant with a thermal storage system for 3 hours. The annual production of electricity will be 370 GWh, of which 40% peak and 60% off peak. This entire program will reduce Morocco s energy dependence and strengthen its power generation capacity, as well as reduce the negative impact of fossil fuel imports on the State budget. Greenhouse gas emissions will be reduced - the Moroccan Solar Plan (2 GW) will avoid the emission of approximately 3.7 million t. eq. CO2; and the first phase of 150 MW, is estimated to avoid about 270,000 t. eq. CO2 per year. 26

27 06 Summary The USD billion in climate finance flows from the members of the UNEP BFI CCWG, despite being a drop from 2010 numbers, is a significant portion of the global climate finance landscape. The annual volume of climate finance flow is subject to fluctuation depending on the portfolio of projects/programmes committed during the year saw some changes from previous years mapping. JICA continued to be the largest funder amongst the BFIs, but decreased funding for both mitigation and adaptation; primarily due to the difference of timeframe for reporting (calendar year) and operation (Japan s fiscal year is from April to March). AFD had a modest 11% increase in adaptation funding with a 32% cyclical decrease in mitigation, mostly due to the fact that some big investments have been postponed to the beginning of next year. And KfW had a remarkable 626% increase in adaptation spending and an 18% increase in mitigation (these percentages were calculated without Eastern and Southern Europe figures included to make an accurate comparison). Concessional loans for both mitigation and adaptation are the most used financial instrument. Sectorally, energy (62%) and water supply/treatment (51%) account for more than half of mitigation and adaptation spending. And other disaster risk reduction funding increased a significant amount. Regionally, Asia receives more than half of mitigation and adaptation funding, with South Asia receiving a significant increase. More players are increasingly getting involved in the mapping of their climate finance flows; which in future years will hopefully improve upon definitions and methodologies in tracking and measurement and create even more useful information. 27

28 06 Appendices Appendix I Climate Finance : Definitions and Terminology Climate finance as used in this report is further defined and qualified in this Appendix. As Parties to the UNFCCC and other actors have so far evaded a decision to develop a common definition of climate finance, this report adopts a broad but transparent use of climate finance. Climate finance There is no standardised, global definition of climate finance. Recently, attempts have been made to synthesise and classify various uses of climate finance. Within this literature, the distinction has been made between climate-specific finance and climate-relevant finance. [9] According to this taxonomy, climate-specific finance flows to developing countries and goes to lowcarbon and climate resilient development with greenhouse mitigation or adaptation as its explicit objective, while climate-relevant finance refers to broader financial flows that support development in emitting sector (e.g. power production) and sectors that affect vulnerability to climate change (e.g. water, agriculture). According to this distinction, climate finance reported in this mapping exercise includes both climate-specific and climaterelevant finance; however, the only climate-relevant finance included is that which has a relative climate benefit. To illustrate, no financing to the conventional, high-emitting energy sector is reported in the mapping, however energy efficient projects that provide energy at lower emissions or at less intensity may be counted. Common working definition A working definition of climate finance for purposes of this report is proposed as: Finance flowing from developed to developing countries, including support for mitigation, adaptation, policy and capacity-building. Mitigation projects include renewable energy projects, energy efficiency and fuel switch, forestry and land use, sustainable urban transport and sequestration projects, and technical assistance and capacity building dedicated to addressing climate change. Adaptation projects imply that part of the project is dedicated to a specific adaptation purpose such as water, agriculture, infrastructure, or capacity building. Also included is direct budgetary support for climate policy. Where funds support an activity with both an adaptation and mitigation benefit, the UNEP Working Group members reported half of the total amount under mitigation and half as adaptation. To determine what qualifies as mitigation and adaptation, the Working Group uses guidance from the Rio markers and the new adaptation marker of the Organisation for Economic Co-operation and Development s Development Assistance Committee (OECD DAC). 28 [9] Corfee-Morlot, J., B. Guay and K.M. Larsen (2009), Financing for Climate Change Mitigation: Towards a Framework for Measurement, Reporting and Verification, OECD/IEA Informational Paper.

29 The Scope of climate finance by institution AFD KfW Climate mitigation projects are assessed based on a measurement of the carbon footprint of projects for mitigation. A project is included in this category when the emissions it avoids during its lifetime exceed the emissions it induces. AFD has developed a tool and standard methodology to assess the carbon footprint of its projects. This lead finally, in terms of tracking methodology, to a more restrictive thus very compatible methodology compare to the positive list one or Rio marker process. A definition of adaptation projects has also been adopted by AFD: they are development projects that help decrease the vulnerability of populations, infrastructures and ecosystems to current and future impacts of climate change. To make this definition concrete, a precise typology of projects that can contribute to this objective has been set up, and this list is then crossed with an analysis of the specific vulnerabilities to climate change faced by the country where the project is to be implemented. AFD climate tools and methodologies can be downloaded on AFD s website. Different divisions of KfW (i.e. domestic, export finance, development finance) use slightly different definitions of climate financing in order to be compatible with internal planning and reporting systems. For climate flows to developing countries, DAC Rio-Marker 1 or 2 in combination with the new DAC adaptation definition is used as key selection criteria. JICA For climate flows to developing countries reported for this report, DAC Rio-Marker 1 or 2 in combination with the new DAC adaptation definition is used as key selection criteria. Funds committed and funds disbursed It is standard practice by finance institutions to report in terms of total funds committed in a given budget year. This is sometimes questioned by those attempting to track financial flows, because funds committed in a given time period can differ from funds disbursed, and because there is a perceived danger of double counting when funds committed in a given year are not disbursed but reassigned in a different budgetary year. The participating financial institutions provide the following information for what it meant by committed funds. AFD KfW JICA Funds that have received Board approval. Definition of commitment is to conclude Loan Agreement (L/A) or Grant Agreement (G/A). Definition of commitment is to conclude Loan Agreement (L/A) or Grant Agreement (G/A). 29