Concept note: Climate Envelope Programme Committee, 23 February 2017

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1 Concept note: Climate Envelope Programme Committee, 23 February 2017 Strategic questions Are the proposed allocation for 2017 and the indicative pipeline for 2018 and 2019 for the Climate Envelope considered appropriate taking into consideration the guiding principles for the Climate Envelope and the new strategic framework for Danish development cooperation? What are the implications of the new Danish strategy for development cooperation and humanitarian assistance for the future direction of the Climate Envelope? 1. Context Climate change challenges global efforts to combat poverty, threatening to push an additional 100 million people into poverty by 2030, and even more if we do not accelerate mitigation actions. The impacts of climate change including floods, droughts, more frequent natural disasters, and sea-level rise are already being felt by millions of people. Established in 2008, the Danish Climate Envelope is a mechanism for channelling dedicated climate funding to supporting mitigation and adaptation activities in developing countries. The Ministry for Energy, Utilities and Climate (MEUC) proposes and prepares activities for half of the Climate Envelope funds while the Ministry of Foreign Affairs (MFA) proposes and prepares activities for the other half of the Climate Envelope funds. The annual allocation of the Climate Envelope Frame is subject to approval by the government s coordination committee (this took place in October 2016 for the 2017 allocation of the Envelope). The Climate Envelope is managed as an integrated part of Danish development assistance. The global climate agreement from Paris in 2015 marked a breakthrough for the global regime on climate change mitigation and adaptation. The overall objective of keeping global temperature increases below 2 degrees (compared to pre-industrial level) and the associated development of national plans for mitigation and adaptation actions (National Determined Contributions), together with a mechanism to increase ambitions over time, comprise core elements of the Paris agreement. Together with the Sustainable Development Goals, the Paris agreement constitutes a solid regime for the much needed actions to combat climate change. Focus now needs to be on implementation. The commitment by developed countries from COP15 in Copenhagen to mobilise USD 100 billion from a variety of sources in climate finance by 2020 was also reconfirmed by the parties in Paris. The global finance architecture linked to this goal has been under development since 2010 and a broad number of multilateral financing mechanisms with different focus and set up have emerged. One of the key objectives of the Paris agreement with potentially wide-ranging implications is to make all finance flows consistent with a pathway toward low greenhouse gas emissions and climate-resilient development. This reflects the broad recognition that investments of trillions of USD will be required to realize the (necessary) transition (to meet the overall objective) and that this will require mainstreaming of climate considerations in national 1

2 investment and development plans, by the international community and MDBs as well as private sector capital allocation. The Danish Climate Envelope: Looking back The annual level of funding from the Danish Climate Envelope grew gradually from 2008 to 2011, reaching a level of DKK 500 million annually from 2011 to Also due to the fact that the international climate finance regime was in its early stages of development, Danish Climate Envelope funding since 2008 has been channelled through a relatively high number of different channels and recipients. Funding decisions have reflected ongoing progress in the UNFCCC and the increasing focus on supporting both early stage readiness activities and preparing implementation on the ground in light of the 100 billion target. These can be summarized under two main groups: A) Multilateral financing mechanism Recipients of Climate Envelope funds under this heading include the Climate Investment Funds (linked to the multilateral development banks), the Least Developed Countries Fund (LDCF) (linked to the Global Environmental Facility (GEF)), the NAMA Facility (National Appropriate Mitigation Actions), the Global Green Growth Institute (GGGI), the Clean Technology Centre and Network (CTCN), the Climate and Clean Air Coalition (CCAC) and the Green Climate Fund (GCF). To this comes a number of targeted interventions through multilateral organisations like the International Energy Agency (IEA), the World Bank and the International Union for Conservation of Nature (IUCN). The Green Climate Fund was decided by COP16 in Cancun in 2011 to be a key delivery mechanism for climate finance to developing countries. The operationalisation of the fund has, however, taken longer than expected and the fund is only now beginning to channel funding to implementing organisations at a larger scale. B) Bilateral cooperation and government-to-government cooperation The MEUC has developed a government-to-government cooperation on energy and climate focusing on emerging economies like Vietnam, South Africa, China, and Mexico. Through the cooperation, the Danish Energy Agency supported by the Danish TSO (Energinet.dk) and other Danish expertise engages in a peer-to-peer cooperation with equivalent government institutions. Also, a strong focus of the Climate Envelope has been to support adaptation action in Danida partner countries with focus on water and land-use, climate forecasting, and building resilience. A general priority is to support mainstreaming of climate into country programmes in Danida partner countries. An external evaluation of the Danish Climate Envelope was conducted in Overall, the evaluation concluded that Denmark so far has been a consistent and reliable supporter of international climate change programmes and initiatives. The investments made by Denmark have been highly relevant to international and national priorities and have been well-aligned with commitments from other donors. The evaluation furthermore concluded, based on a review of sampled interventions and projects that there was good progress overall towards 2

3 achieving outputs, with a few exceptions. For many of the interventions, it is still too early to assess the outcomes. Looking forward, the evaluation concludes that the many activities supported provide a rich basis of experience and expertise that should be moulded into a more coherent and focused system of support. This should allow for better management of the portfolio and for better results. On this basis and at the request of the external grant committee a revised strategic framework with a number of guiding principles for the Climate Envelope was finalised in the beginning of Looking forward, these guiding principles will within the framework of the new Danish development strategy provide the basis for a future more focused planning of the Climate Envelope funds. 2. Strategic Framework (guiding principles) for the Climate Envelope The guiding principles document for the Climate Envelope sets out an overall Theory of Change (ToC) for the Climate Envelope as well as a number of guiding principles for use of Climate Envelope funds (table included in annex 2 of this document). Furthermore the document establishes an indicator framework for the Climate Envelope with three core indicators and a number of voluntary indicators based on a framework being developed by the Green Climate Fund. The overall objective for the Climate Envelope is threefold: It is to 1) Assist developing countries to adapt to climate changes; 2) Assist developing countries with the transition to low carbon economies; and 3) Prepare developing countries to enter into and implement the new global climate agreement. The specific impact that is targeted by the Climate Envelope is the following: Reduced greenhouse gas emissions Increased climate resilience, specifically for vulnerable and marginalised groups To achieve this impact, Climate Envelope interventions will address the following outcomes: Strengthened national and community-level climate change policies, planning frameworks, and information systems Scale up of climate relevant technologies, infrastructure, and markets More consolidated, effective, and ambitious international climate architecture The guiding principles for use of Climate Envelope funds deal with balance and boundaries and with project effectiveness of the Envelope. The balance and boundaries principles are for example about alignment of the projects with the ToC for the Climate Envelope, a strong focus on development of result frameworks, and the balance between mitigation and adaptation. On project effectiveness, three key criteria are established: 1) National strengths: Where possible, Climate Envelope funds will be targeted interventions where Denmark can add value in terms of strengths, competences, or interest (commercial or regulatory), rather than being visible in a broad variety of support mechanisms 3

4 2) Leverage: Leverage of private finance and innovation are seen as important objectives of the Climate Envelope. Thus, a willingness to take risks guides the prioritisation of interventions financed from the Envelope 3) Transformation: Priority will be given to interventions where chances of achieving transformational change through accompanying changes in policy, markets, or finance structures (both public and private) are largest Other important principles on project effectiveness include linkages with other ODA, poverty orientation, and added value post-cop21. These principles are important when selecting and designing activities to be funded by the Climate Envelope. The guiding principles correspond well with the new Danish strategy for development cooperation and humanitarian assistance. The Sustainable Development Goal on climate change and the Paris climate agreement are important elements in the strategy with particular focus on partnerships, the use of Danish competences and supporting inclusive green growth. Focus is also on the importance of strengthening resilience among poor and marginalised groups. 3. Danish Climate Envelope - looking forward Based on the guiding principles and a strong wish to use Climate Envelope funds more strategically, the Danish MFA and the MEUC have agreed to focus Climate Envelope funds during 2017 on the below mentioned activities (approved by the government s coordination committee). 3.1 Allocation of the 2017 Climate Envelope In the 2017 finance bill, DKK 300 million have been set aside for the Climate Envelope. These funds are proposed utilised on the following mitigation and adaptation activities: DKK 115 million to the Danish Energy Agency Energy Partnership (DEA EP) DKK 100 million for building climate resilience in Danida partner countries of Myanmar, Uganda, and Bangladesh DKK 60 million for continued Danish support to the Global Green Growth Institute (GGGI) DKK 25 million for continued Danish support to the Energy Efficiency in Emerging Economies (E4) programme implemented by the IEA. Description: 1. A new three-year phase of the Danish Energy Agency Energy Partnership (DKK 115 million) The bilateral government-to-government cooperation on energy utilises Danish strengths and competences to support energy system transformation in selected emerging economies. It has been decided to allocate DKK 115 million from the Climate Envelope 2017 to continue Denmark s cooperation on climate and energy with China, Mexico, South Africa, and Vietnam. This will be through one integrated government-to-government technical cooperation program designed to provide mainly technical assistance from the Danish Energy Agency to partner country public institutions in a peer-to-peer manner. Since the new integrated Energy Partnership Programme is in the process of being formulated, it has already been 4

5 presented to the Programme Committee on 27th of January including subjected to associated public consultations. 2. Building climate resilience in Danida partner countries (Bangladesh, Myanmar, and Uganda) (DKK 100 million) a. Climate adaptation in Myanmar by management of mangrove forests (DKK 35 million) Myanmar is worldwide judged to be one of the top-3 countries to be hardest impacted by climate changes, including rising sea levels and higher frequency of extreme weather events (cyclones, storm surges, etc.). The poor and often marginalised coastal communities in Myanmar will be directly exposed to these impacts and their vulnerability amplified by low resilience and capacity to adapt to the new challenges of climate change. Mangrove forests along parts of the coastline of Myanmar create a natural barrier toward impacts from extreme weather events. Mangroves are also an important ecological system supporting fisheries, forest resources, and other essential ecosystem services which local communities depend on. As such, efforts to improve management and restoration of mangrove forests will not only protect coastal communities toward direct impacts of climate change but will also support basic livelihoods and economic activities essential for building community resilience and capacity to adapt to impacts of climate change in general. Added to this, the significant ability of mangrove forests to capture carbon and contribute to mitigation of climate change on a global level. The Danish support will help realising the National Reforestation and Rehabilitation Program in Myanmar , prepared by the Ministry of Natural Resources and Environmental Conservation (MoNREC). The support will target interventions for management of existing and rehabilitation of former mangrove forests, e.g. in State of Rakhine, and will as far as possible be coordinated with the efforts for sustainable coastal fisheries supported by the Denmark-Myanmar Country Programme There will be close collaboration with the Forest Department under MoNREC and with special focus on the Community Forestry Instructions (agreed in August 2016) which improve the opportunities to build co-management partnerships to increase the involvement of coastal communities in the planning, planting, maintenance, monitoring, and sustainable utilisation of local mangrove forests. The support is planned for the period , parallel with the implementation of the Country Programme. b. Improved climate change resilience of farmers and refugees in Northern Uganda (DKK 35 million) Climate change is having significant negative effects in Uganda, not least for those two-thirds of the population that are small-scale farmers dependent on the natural resource base. The impact of prolonged periods of drought and decreasing and more erratic rainfall is exacerbated in the marginalised region of Northern Uganda by disproportionate poverty and the influx of half a million refugees in If no adaptive action is taken in the coming years, annual costs associated with climate change could be up to USD 6 billion by 2025, urbanisation could accelerate further, and Uganda s ability to achieve the SDGs could be affected. Uganda s climate change policy identifies the water sector as essential for adaptation efforts, and aims at ensuring that climate change concerns are integrated into national efforts for 5

6 sustainable and long-term conservation, access, and effective utilisation and management of water resources. Water resource management is not only crucial in coping with climate change, but is also a key to poverty eradication in Uganda. Without proper investment in water management, economic growth and employment have been projected to suffer significantly. The objective of this initiative is to increase the climate change resilience of small-scale farmers, refugees, and host communities, as well as the wider population of Northern Uganda, in order to contribute to enhanced resilience and equitable economic development. This would also contribute to strengthening the nexus between development and humanitarian efforts. The initiative will be fully integrated into the Northern Uganda Resilience Initiative (NURI), which is part of the Danish Country Programme for Uganda for Building on decades of Danish support for an integrated and catchment-based approach to water resources management in Uganda, the initiative will focus on strengthening ecosystems that support agricultural production and livelihoods in Northern Uganda. This can for example be through reforestation, wetland rehabilitation, irrigation systems, and capacity building of local governments. A Danida advisor is foreseen to support the implementation. The programme will be running from c. Enhanced resilience and increased adaptive capacity in Bangladesh (DKK 30 million) It is well recognised that Bangladesh is one of the most vulnerable countries in the world to climate change due to its geographical location, low deltaic flood plain, the influence of erratic monsoon rainfall, and drought. River floods, high tides, and cyclone surges annually cause major loss of life and property. Denmark has provided development assistance to Bangladesh since 1975 with a strong focus on rural development across the poor areas in the coastal belt. These areas are in the front line of the vagaries of extreme weather. For the past five years, Danida has stepped up its effort to support the Government of Bangladesh in combatting climate change. The suggested programme will build on these experiences with a view to deepening and widening ongoing efforts with tried and tested partners. The partners include a government agency, a non-profit company, and a Danida supported project implementation unit. The purpose of the suggested programme is: Enhanced resilience and increased adaptive capacity amongst the relevant communities and partners. The programme will cover three development engagements: - Building resilient rural infrastructure in the district of Noakhali that links centres of population to cyclone centres build by other actors. This will be done in partnership with the Local Government Engineering Department (LGED) (DKK 20 million); - Adapting water and sanitation to climate change in the district of Noakhali in partnership with the dedicated agency (DKK 5 million); and - Promoting urban adaptation to climate change in partnership with the Danida supported project implementation unit (DKK 5 million). d. Global Green Growth Institute (3GI) (DKK 60 million) A DKK 60 million Danish support for GGGI is envisioned for the period This would be the third Danish contribution to GGGI (DKK 90 million was committed to GGGI in

7 and DKK 90 million was committed in 2011). A joint donor review in 2015 demonstrated that GGGI has made tremendous progress since its inception as an international organisation in GGGI supports the transition of GGGI Member countries towards a green growth model by developing and implementing strategies that simultaneously achieve poverty reduction, social inclusion, environmental sustainability, and economic growth. In pursuit of these goals, GGGI works with developing and emerging countries to design and deliver programs and services that demonstrate new pathways to pro-poor economic growth. GGGI provides Member countries with the tools to help build institutional capacity and develop green growth policy, strengthen peer learning and knowledge sharing, and engage private investors and public donors. GGGI has three strategic outcomes, 1: Strengthened national, sub-national, and local green growth policy planning, financing, and institutional frameworks; 2: Increased green investment flows; and 3: Improved multi-directional knowledge sharing and learning between countries on green growth. In 2017 and 2018, a budget of USD 31 million, or 70% of the total core budget, will be allocated to in-country and global programmes. GGGI s programmes for focus on ensuring relevance of programmes to partner needs and development ambitions. This tailored approach contributes toward systematic and sustainable country programming that is aligned with national priorities, planning cycles, and processes. GGGI operates in Cambodia, Ethiopia, Kiribati, Lao PDR, Mozambique, Myanmar, Nepal, Rwanda, Senegal, Uganda, Vanuatu, Fiji, India, Indonesia, Mongolia, Morocco, Philippines, Vietnam, China, Columbia, Jordan, Mexico, Peru, Thailand, and UAE. 3. International Energy Agency continuation of Energy Efficiency in Emerging Economies (E4) to further advance and secure low-carbon transformation of energy systems in key emerging economies (DKK 25 million) With CO2 emissions from the energy sector accounting for some 2/3 of global emissions, continued efforts to support low-carbon transition of energy systems remains a key priority for turning the political momentum of the Paris Agreement into real time implementation of the associated National Determined Contributions (NDCs); in particular in key major emerging economies where energy demand is growing and cost efficient mitigation impact potentials remains substantial. To address these challenges and opportunities, the Government of Denmark (together with the European Commission) in 2013 committed DKK 25 million in support to the IEA-E4 programme. The IEA-E4 programme has been working in partnership with key emerging economies on a successful and rich program of engagement and implementation activities. E4 is presently working with a select group of major economies, a.o. Brazil, China, India, Indonesia, Mexico, South Africa, and Ukraine, as well as with regional and multilateral platforms including ASEAN and G20. As a result, partner countries have a better understanding of energy efficiency potential in their economies; the impact of current policies 7

8 and future policy options. Data, modelling and policy design, and implementation capacity have also been improved; and communities of practice have been built among energy planning and efficiency experts and stakeholders within countries and across countries. There is substantial potential to build on the current activities and a strong appetite from the emerging economies for further engagement in strategic development of the program in two areas in particular: Firstly, the value of regional and multilateral engagement is growing, and secondly, there is the potential and interest to extend the scope from merely energy efficiency to also engage on renewable energy, making the platform more integrated and holistic across the theme of clean energy transition. As previously, potential synergies within activities on energy efficiency and renewable energy between DEA-Energy Partnership and E4 will be explored and utilized in order to impact mitigation of carbon emissions and contribute to the countries long term planning on renewable energy and energy efficiency. In return, the expanded E4-program will support IEA s transformation process with the aim to become an even stronger global player with increased ties to the biggest energy consumers and emitters on energy efficiency and sustainable energy systems. Such development is in line with the IEA Ministerial Vision from 2015 to transform IEA into a global hub on green energy technology including energy efficiency. As previously, co-funding from the EC and other like-minded donor constituencies of the IEA will be sought to increase the scope and impact of the E4-program to further advance and secure low-carbon transformation of energy systems in key emerging economies. Assessment of the proposed 2017 Climate Envelope allocations against the guiding principles The proposed allocation of the 2017 Climate Envelope funds are about equally divided between mitigation and adaptation related activities, thereby targeting the overall objectives for the Climate Envelope of reducing greenhouse gas emissions as well as increasing climate resilience for vulnerable and marginalised groups. A strong focus on development of result frameworks will be pursued for all of them. Furthermore, all of the proposed activities are at different levels targeting the outcome targets of strengthening national and community-level climate change policies, planning frameworks, and information systems as well as scaling up of climate relevant technologies, infrastructure, and markets. On the project effectiveness part of the guiding principles, Danish national strengths in developing low-carbon transition of the energy sector are most prominently brought into play by the government-to-government cooperation on energy (DEA EP) with emerging economies. Also there is likely to be synergies with Danish national strength from the IEA programme on energy efficiency and renewable energy as well as the work on water management in Uganda and Bangladesh. In terms of leveraging, this is mainly brought into play by the efforts to mainstream climate resilience into wider country programmes as well as ability to attract additional public funds. The proposed 2017 activities are not focused on direct 8

9 leveraging of private finance, however, there is a significant potential for indirect, or downstream mobilisation of private finance from the potential transformational changes that is expected from most of the activities: DEA EP, IEA E4, and GGGI from changes in national legislation related to energy efficiency, renewable energy, and green growth. Transformational changes can also be expected from water related activities in Uganda and Myanmar giving women and refugees access to services. Poverty reduction is a key focus of resilience initiatives in Myanmar, Bangladesh and Uganda. Administration While the MFA holds the overall responsible for administration of the Climate Envelope, the MEUC will be leading the preparation, implementation, monitoring, and closure process on activities falling under their initiative. For the 2017 allocation, this includes the DEA EP and the IEA E4 work. The MFA will be leading on GGGI as well as the bilateral projects in Bangladesh, Myanmar, and Uganda. 3.2 Indicative pipeline for the Climate Envelope For the 2018 and 2019 Climate Envelope, the below mentioned priorities/activities have been identified as relevant for financing from the Climate Envelope. The decision on which of them to finance from the Climate Envelope will be made within the framework of the guiding principles and the objective of focusing efforts on few activities (and will be subject to approval by the government s coordination committee). Denmark will aim to provide its fair share to the Green Climate Fund as a key multilateral channel to support efforts on mitigation and adaptation activities. Substantial efforts will be used via the Danish seat in the GCF board on making the GCF function as efficiently as possible in support of activities that are transformational and catalyse private investments. Continued support for additional supportive multilateral funds such as the NAMA facility will also be considered. The Sustainable Development Goal Fund (hosted by IFU) could be a key mechanism to support accelerated private investments in low carbon development. This will in particular contribute to the scalling up of climate relevant technologies, infrastructure and markets and have the potential to leverage significant additional private financing and lead to transformational change in recipient countries. Promoting investment grade national frameworks. Support for policies and regulation that encourage private investors to significantly increase their investments in sustainable energy/green infrastructure i.a. by providing investor certainty. Expected implementation by OECD in partnership with MDBs and others, building on their experience with green investment frameworks and work with emerging economies. Complements the energy policy support for emerging economies by DEA EP and IEA. De-risking instrument in support of sustainable energy investment projects in developing countries. Efforts are ongoing to design and deploy de-risking instruments 9

10 that catalyse private investments in sustainable energy projects (e.g. Energy Savings Insurance (ESI) and de-risking of power purchase agreements). To be anchored in a DFI/MDB and developed with participation of Danish developers and investors. Support for the development of bankable project through the established project development facility at IFU to expand the pipeline of financially viable projects for private investors Further accelerating the sustainable energy transition through support that enables multilateral energy organizations (like IEA, CEM and IRENA) as well as the SE4All Energy Efficiency Hub in Copenhagen to provide country-specific support to accelerate the sustainable energy transition. Support for the Intergovernmental Panel on Climate Change (a Danish contribution of 5 million DKK was provided for ) Mainstreaming of climate considerations into country programming in Danish partner countries. Building resilience and assisting poor people with adapting to the consequences of climate change is decisive to fight poverty, prevent migration and to pave the way for sustainable growth Civil society actions on awareness raising and capacity building. Civil society plays an important role in strengthening local capacity and building community-level climate change policies Danish Energy Agency Energy Partnership with additional country. Should there be a strong political demand and an attractive opportunity to extend the bilateral Danish Energy Agency Energy Partnership to a strategic new partner country (e.g. India), it may be considered to include this in the Climate Envelope for Monitoring Separate result frameworks will be developed for all of the above mentioned activities. To enable monitoring of the Climate Envelope at portfolio level, a monitoring framework has been developed. All interventions under CCE, approved in 2016 and later, should include one or more 1 of the following core indicators and report upon it annually: Impact: Tons of carbon dioxide equivalent reduced as a result of CCE mitigation interventions Impact: Total number of people benefitting of the CCE resilience interventions Outcome: Low-carbon and climate resilient enabling environment (policies, legislation, systems, structures, assets) developed as a result of the CCE interventions 1 Interventions with co-benefits (mitigation/adaptation) should report upon these. 10

11 An annual effort will be undertaken to track these indicators and aggregate them at the level of the Climate Envelope. 5. Annexes 1. ToC for the Climate Envelope 2. Process Action Plan 11

12 Annex 1: Theory of Change for the Climate Envelope

13 Annex 2: Climate Envelope 2017: Process Action Plan Activity Amount (million DKK) Preparation and quality assurance Approval Commitment (2017) Responsible Danish Energy Agency Energy Partnership Climate resilience in country programmes - Uganda (35) - Myanmar (35) - Bangladesh (30) Global Green Growth Institute IEA 4E Energy efficiency and Renewable energy 115 DEA has contracted consultants to develop project documentation. MFA conducts appraisal in process (December- March) with involvement of KFU 100 Embassies responsible for quality assurance. Sparring by KFU 60 Appraisal by KFU in April or May 2017 (if possible in coordination with other reviews) 25 Appraisal by KFU in June Council for development policy, May 2017 Under Secretary. For Uganda presentation to council for development policy together with country programme. Council for development policy in September 2017 Accumulation: Council for development policy in September 2017 Second quarter Bangladesh third quarter, Uganda and Myanmar fourth quarter Third quarter Third quarter MEUC Embassies MFA MEUC