Climate finance highlights since July 2013

Climate Funds Update data is now current as of October 2013.[1] This brief note highlights new developments including pledges, approvals, and disbursements.

New Climate Finance pledges July 2013 – November 2013:

Pledges and deposits have been fairly static. The US has made the largest new deposits of USD 176 million to the Clean Technology Fund (CTF). The UK has also increased its deposit to the CTF by USD 7 million since June 2013, but no other significant changes have been registered for other countries.

New approvals and disbursements July 2013 – November 2013:

Funds are getting down to work, and USD 1.2 billion was approved for new projects since July,   although only about USD 195 million was disbursed.

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  • Mitigation funds have been most active, in particular the CTF with USD 835 million of new funding approved, primarily targeting India through three concessional loans financing a large-scale solar park in Rajasthan, a national energy efficiency programme, and hydropower development in Himachal Pradesh
  • The GEF5, under the UNFCCC, also approved a considerable amount of funding (USD 125 million) for 41 new projects in 10 different countries. Mexico received the largest new approval with a USD 17 million grant for the Sustainable Energy Technology Development project.
  • The Pilot Program for Climate Resilience (PPCR) approved additional US$ 200 million for adaptation finance for 8 full size projects and 6 project preparation grants.  The largest project is the US$ 45 million for Strengthening the Resilience to climate change in the Rio Grande Basin and National capacity for Managing Climate change in Bolivia;
  • Finally, about USD 48 million of new REDD+ finance has been approved by the Amazon Fund and the Congo Basin Forest Fund (CBFF).

 

For an overview of key trends in dedicated climate finance in 2013, please take a look at the ODI HBF report 10 Things to Know About Climate Finance in 2013. CFU users may also be interested in our review of lessons from the Fast Start Finance period for long term climate finance, and our studies of the effectiveness of multilateral climate funds.


[1] Data was confirmed by fund managers in September and October 2013

Climate Finance: A Few Fundamentals for 2013

Developed countries have provided finance to help developing countries respond to climate change through many different channels, including dedicated multilateral climate funds. The UNFCCC COP in Warsaw this week, it is hoped, will focus political attention on climate finance. A High-level Ministerial Dialogue, chaired by the Ugandan Minister of Finance and the Danish Minister of Climate Energy and Buildings, will take stock of the efforts taken to scale up climate finance in the last year and to provide a strategy on how to make further progress.

In advance of these important meetings, ODI and the Heinrich Böll Foundation North America have released our annual series of Climate Finance Fundamentals (CFFs). The CFFs analyse major trends that emerge from our efforts to monitor finance spent through these funds on Climate Funds Update.

USD 356 million has been pledged and USD 749 million deposited to these funds since last year. The largest contributors to these funds were the UK, US, Germany and Japan. Between October 2012 and September 2013, USD 431 million was approved for new projects and USD 429 million disbursed to support 157 projects, a 23% increase from the number of projects approved the previous year.

Approved mitigation finance has increased by 29%. The Clean Technology Fund is the biggest player in mitigation finance, tending to concentrate on large-scale programs in a small number of emerging economies. It approved a total of USD 2.2 billion (only including projects approved by both the Trust Fund Committees and the implementing Multilateral Development Banks). Almost 90% of total mitigation finance is concentrated in just twenty countries. Some of the largest mitigation projects are concentrating solar programs in the Middle East and North Africa (Egypt and Morocco), and in Asia. Only USD 120 million was approved for new projects in Asia, which represents a substantial decrease relative to past years.

Approved funding for adaptation increased by 34%. Overall, although it still receives only 21% of total approved climate finance targets adaptation as a whole. The Adaptation Fund and the Special Climate Change Fund registered the highest increase of approved finance in the last year. 40% of the USD 93 million approved for projects in Sub-Saharan Africa focused on adaptation.

Reducing emissions from deforestation and forest degradation (REDD+) focused funds have been relatively static over the last 12 months, with only USD 34 million in new pledges. USD 100 million was approved for new projects. Norway remains the largest contributor of REDD+ finance. However, the future of programs such as Australia’s Forest Carbon Initiative is highly uncertain. USD 556 million in REDD+ finance was directed to Latin America, with much of it going to Brazil. While relatively few new projects appear to have been approved in the region, disbursement appears to have increased by at least 43%, suggesting that program implementation is advancing.

The newest actor in this complex and evolving architecture is the Green Climate Fund (GCF), established by the UNFCCC COP with an independent secretariat that is about to move to Song Do, Korea. Hopes are high that the GCF will be operational by the end of 2014, but progress has been slow, as a number of key issues still remain to be resolved by the 24-member Board.

Progress continues to be made in incorporating gender considerations into fund programming. In 2013 the Climate Investment Funds (CIF) recruited a gender specialist, and the Global Environment Facility (GEF) made progress in implementing its gender policy. The GCF has the opportunity to be the first climate fund to emphasise gender dimensions of climate change from the outset.

Finally, while the transparency of climate finance has been improving, there is a continued need for more complete and comparable reporting by funds. The commitments that the GEF, CIF and Adaptation Fund made to adopt the International Aid Transparency Initiative standards this year may be a step in the right direction. There is a particular need for information on the amount of finance that has been disbursed to recipients in developing countries. Better information will allow us to better understand the likely impacts and effectiveness of increasingly established climate funds.

Who’s ready for climate finance?

Richard Calland (Africa Climate Finance Hub) and Smita Nakhooda (ODI)

Is it a bird or is it a plane? The question of what ‘readiness’ for climate finance involves has attracted a great deal of attention and debate, particularly since the Green Climate Fund is supposed to channel $100 billion a year by 2020 for climate action and policy in developing countries.

Despite various efforts from a number of international bodies such as the UNDP, there is little consensus about the matter. Is it a process or an event? This is a yes or no question: you are either ready or you are not. Either way, how on earth do you measure it (or should you even try to do so)?

There have been inevitable levels of ambivalence from potential recipient countries. They welcome the idea of finance that will put them in a better position to use the funds, given the complexity of accessing climate finance, but they are also wary of more red-tape that will absorb time and effort, and end up looking like ‘conditionality’. If you’re not ‘ready’, you may not be ‘certified’ fit for receiving climate finance.

In an effort both to better understand what climate finance readiness funding might usefully entail and, more importantly, what the needs of potential recipient countries might be, researchers from ODI and the Africa Climate Finance Hub spent a year talking to people in three Southern African countries – Namibia, Tanzania and Zambia. We began this work in partnership with GIZ and with support from the German government.

Because every place has unique socio-economic, political and institutional conditions, our starting premise was that any assessment of country readiness should take the ‘3 Rs’ into account:

  • be RELATIVE to a country’s socioeconomic and geopolitical characteristics;
  • be RESPONSIVE to the country’s particular needs, priorities, and challenges – and therefore flexible;
  • be REASONABLE, factoring in key national issues and constraints, and thus identifying the practical steps that can be taken.

All three countries are seasoned recipients of official development assistance (known as ODA), and acutely attuned to the power-play that can quickly subsume conversations about who gets what, when and how. As one finance ministry official put it: ‘we will invest in getting ready for climate finance, but only if we can see that the investment will be worthwhile’. The subtext is: will readiness finance really benefit potential recipients?

From our fieldwork, we gained a number of insights into how readiness finance might cohere with the other efforts that countries are making to address the challenge of climate change.

We considered in-country processes and institutions responsible and necessary for planning for climate change and programming associated finance. We also stressed the importance of what we term ‘aptitude’ – by which we mean more than just the exhausted notion of ‘capacity’, but rather ‘mindset’ and the institutional convictions that are required to really grapple with the tough politics of climate action and its associated political economy. Finally we looked at systems to access and spend climate finance – the sourcing as well as the receipt of climate finance and whether funds are being spent well, in order to achieve intended climate related objectives.

Countries are struggling to align action that is focused directly at climate change with broader national strategies for economic development. The threat posed by climate change may appear less direct, and is certainly more nuanced, but is no less dangerous for long-term prosperity. Readiness support could help countries make better links between “climate” strategies and their development finance plans. For example, readiness support could help governments improve the quality of the data that they need to understand the nature and trajectory of stresses and changes in key economic sectors and the risks these pose for proposed investments.

We found, as many others have, that countries struggle to co-ordinate efforts across departments and agencies. Institutions to support the realisation of climate policies and strategies are emerging, and usually include some formal space for the representation of the various ministries and stakeholders who will need to be involved in implementation. For example, the proposed National Climate Change and Development Council in Zambia will draw together the ministries of environment, finance, infrastructure/public works, mines, energy and water, the Office of the Vice President with its disaster management unit and, most likely, the Zambian Meteorological department, while also engaging civil society and private sector representatives. Similarly the process for developing the Namibian Climate Policy and Strategy has involved consultation with other units of government through a National Climate Change Committee.

But in practice, coordination between activities and within planning processes has been challenging, often lacking sufficient mandate, capacity or incentives. Our studies found that there may be implicit or explicit competition for access to funding, and enhanced political profile. Readiness finance might be used to enable more effective coordination, but there is a need to better understand these underlying dynamics so that support can be well targeted.

While developing countries are taking important steps to integrate climate change into their economic development strategies, in many countries further work is required to enhance alignment between emergent climate response strategies, and existing investment and finance priorities.

A step forward could be to agree that readiness for climate finance is neither a plane nor a bird. But investments in climate finance readiness efforts can support enabling activities within countries that allow climate finance to be used to realise a ‘paradigm-shift’ towards climate compatible development strategies.