Climate Funds Update highlights: May 2017

The biggest news in the last few weeks has been the US’s withdrawal from the Paris Agreement. One impact of this withdrawal is uncertainty over the delivery of the remaining $2 billion from the US’s $3 billion pledge to the Green Climate Fund (GCF).  In response, however, many US state governors, mayors, university presidents, and businesses have reaffirmed their commitment to climate action. Some are in talks to become official parties to the Paris Agreement and submit climate pledges under the Non-State Actor Zone for Climate Action (NAZCA) mechanism for sub-national entities, in a bid to match and continue the commitments that the US government does not fulfil. The outcome of these talks could be a game changer for increasing climate support across the US and mobilising greater private sector involvement.

The Bonn climate talks in May also reaffirmed the need for both public and private sector involvement in achieving global target. Key discussions took place in Bonn around the ‘rulebook’ for the implementation of the Paris Agreement, which must be finalised at COP24 in 2018, the Facilitative Dialogue and Global Stock Take processes for monitoring and reporting of climate action, and contention over the Adaptation Fund (AF).

In the wake of these and other key developments in climate action, there have been some interesting movements in climate financing. We have undertaken our May 2017 round of updates to the Climate Funds Update database, which monitors the donations to, and disbursements of financing by the key climate funds. This data can be found on the Climate Funds Update website. In this blog, we’ll summarise the main changes since the last update in November 2016.

The biggest pledges and deposits since November 2016=> money coming from donors to the funds

Only modest additional pledges have been made to climate funds since November 2016. From the funds reported in CFU, the largest increases in pledged amounts have been to the Adaptation Fund (of approximately $70 million) and the Pilot Program for Climate Resilience (PPCR) (of approximately $35 million).

The Adaptation Fund received new contributions of $2.9 million from the Brussels Capital Region, $6.7 million from Flanders (Belgium) and $58.9 million from Germany (bringing their total contributions to the AF to $4.9 million, $7.8 million and $223.9 million, respectively). The PPCR received an increased funding pledge from the United Kingdom of $37 million (bringing the UK’s total contribution to the PPCR to $525.9 million).

Also of note, the Green Climate Fund (GCF) has received a number of small pledges since November 2016: $0.5 million from Cyprus, $4.8 million from Flanders and $10.9 million from Wallonia, two regional governments in Belgium, and $1.3 million from the city of Paris, the first municipal government to make a pledge to the GCF.

Leading project approvals since November 2016=> money going out of the funds

The Green Climate Fund (GCF) has approved the largest amount of new project funding since our last update in November 2016, committing $1,046 across 16 projects. Six of these projects target climate adaptation and six target mitigation, while four cut across both objectives. The largest new project is providing $250 million in equity and $15 million in grant funding towards ‘GEEREF NeXt’, the new phase of the Global Energy Efficiency and Renewable Energy Fund. The GEEREF is a fund of funds that seeks to act as an anchor investor for renewable energy and energy efficiency projects in developing countries, drawing in private investors by allowing them to diversify their risk across multiple projects and technologies. Three further new GCF projects each have over $100 million in approved financing each: the ‘Simiyu Climate Resilient Development Programme’ in Tanzania, ‘Catalyzing Private Investment in Sustainable Energy’ in Argentina, and the ‘Renewable Energy Financing Framework ‘project in Egypt. In the latter two projects, funding primarily consists of concessional loans. The GCF is making use of a greater diversity of financial instruments than has been traditional for climate funds, offering equity and guarantees in addition to grants and concessional loans in an attempt to better address project-specific investment barriers (see infographic 3 on ODI’s 10 things to know about climate finance in 2016).

The Adaptation Fund (AF) has approved $68 million across 35 projects since November 2016. Ten of these projects, averaging $7 million in funding, actively seek to reduce vulnerability and build resilience. The remaining approvals are for $10,000 to $50,000 technical assistance grants under the AF’s Readiness Programme for Climate Finance, which aims to build the capacity of National Implementing Entities (NIEs) to address environmental, social and gender-related risk management (see Adaptation Fund, 2016). The AF has recently approved projects, such as the ‘Integrated approach to physical adaptation and community resilience in Antigua and Barbuda’s northwest McKinnon’s watershed’, which include provisions directed at improving financial and technical access for micro-, small- and medium enterprises (MSMEs). MSMEs are an underserved group with a large potential to undertake adaptation activities; the AF, along with the GCF and a handful of other climate funds are leading the way in increasing the targeting of adaptation activities through this sector.

Since November 2016, funds have approved $389 million for adaptation projects (a 9% cumulative increase), $657 million for mitigation projects (7% increase), $163 million for REDD+ projects (7% increase), and $274 million for multiple foci projects (16% increase) (Fig.1).

Figure 1: Thematic distribution of new project funding since November 2016 (USD millions)

2017 Blog Fig 1

In geographic terms, the Sub-Saharan Africa and the Latin America and the Caribbean regions have attracted the largest amounts of new multilateral climate finance over the last 6 months (Fig. 2).

Figure 2: Geographic distribution of new project funding since November 2016 (USD millions)

2017 Blog Fig 2

Climate Funds Update highlights: November 2016

Alice Caravani and Sejal Patel

The UNFCCC COP21 in Paris left high expectations for COP22 in Marrakesh to deliver a ‘concrete road map’ for mobilizing the $100 billion in climate finance for developing countries by 2020.

The Climate Finance team at ODI has been analysing the latest trends in mobilising public international climate finance through the:

This summary describes the main changes in funding provided by the international climate funds monitored on the CFU website that have happened since last year.

 

The biggest pledges and deposits in 2016: the funding flowing from donors to the funds

Norway, the United Kingdom and Germany are the countries that announced the biggest new commitments (or pledges) in 2016. In particular: Norway to the Amazon Fund ($598 million), the UK to the Scaling Up Renewable Energy Program (SREP) ($679 million) and Germany to a number of funds for a total of $275 million.

However, this year countries have made more efforts in delivering what was promised in Paris at COP 21 by increasing the funding actually deposited into the funds. Notably, $5.67 billion has been deposited into the Green Climate Fund (GCF); $3.25 billion of which by the United States and $1.5 billion each from both the United Kingdom and Japan.

 

Leading project approvals in 2016: the funding going out of the funds

The GCF has approved the largest amount of funding this year, with 19 new projects totalling $1 billion. This value is equal to the combined project approvals of all the Climate Investment Funds. The approved GCF projects cover renewable energy, water management and several projects spanning more than one sector. The Sustainable Energy Financing Facilities project, located in 10 countries over the African, Asia-Pacific, and Eastern European regions is the largest program approved since 2003 and is funded through a grant of $34 million in addition to a concessional loan of $344 million. It aims to deliver climate finance to the private sector at scale through Partner Financial Institutions.

 

Thematic focus

2016 has been particularly mitigation driven, with increases of 50% in mitigation project approvals (excluding REDD+) ($851 million), 31% in multiple foci ($535 million) and 18% in adaptation projects ($315 million). REDD+ projects have only attracted around $16 million (1%). However, some of the multiple foci projects approved by the GCF such as the Sustainable Landscapes in Eastern Madagascar, include forests and land use as a results area.

The largest adaptation project approved this year ($38 million grant) is also a GCF project –Strengthening the Resilience of Smallholder Farmers in the Dry Zone to Climate Variability and Extreme Events through an Integrated Approach to Water Management, based in Sri Lanka.

 

Regional highlights

Sub-Saharan Africa and Asia have attracted the largest amounts of multilateral climate finance approved, respectively $630 million and $506 million, in the last 12 months, out of a total in approvals of $2.8 billion. In Asia, 82% of new approvals have been directed towards mitigation projects. There has been a greater range of projects in Sub-Saharan Africa, with 43% of new approvals towards adaptation projects, 39% towards mitigation projects, and 17% going to multiple foci projects.

Morocco, host of COP 22, is the largest recipient of the MENA region, with 5 new projects, totalling $44 million. $39.8 million of which comes from the GCF for the Development of Argan Orchards in Degraded Environment, largely supported by the Moroccan government through its NAMA. However, Morocco, has been dominating the funding allocated to the region (with 59% of total MENA funding) since 2003. The three largest projects in Morocco are funded by the CTF, including a $238 million concessional loan for the Noor II and III Concentrated Solar Power project, which is a large-scale solar power investment programme.

 

SIDS

In 2016, $146 million was approved for projects in SIDS. 55% of this amount was for projects in the Caribbean SIDS, 32% in the Pacific SIDS, and 13% in the Africa, Indian Ocean, Mediterranean and South China Sea (AIMS) SIDS. Guyana, Samoa and Maldives are the largest SIDS recipients, receiving between $70 and $80 million each.

 

As expected, the most active fund this year has been the GCF. It has substantially increased its project approvals, and is meeting the balanced adaptation and mitigation allocation target.  This is an important positive sign, particularly in light of the relatively lower share of adaptation finance approved by the other climate funds in the last 12 months.

 

 

Climate Funds Update highlights: May 2016

The Paris Agreement necessitates a gear change in progress on the ground

In December 195 nations came together in Paris to secure an historic global climate agreement. The question of who should foot the bill for implementing the agreement was always at the core of the negotiations, and especially so for poorer countries with little historical culpability and urgent development imperatives.

Talks held in Bonn, Germany over the past fortnight were the first official meeting of parties to the UN climate convention since the euphoria of COP 21‘s close in December. Now that agreement has finally been reached the world’s focus must shift from negotiating to getting on with the task at hand.

Paris sent a strong signal with respect to finance with countries announcing US$ 1.5 billion in new pledges to climate funds, and reaffirming their commitment to scale up climate finance from a 2020 floor of $100 billion per year. Rich countries must deliver on these commitments if they are to maintain the mutual trust needed to foster momentum for the rapid low-carbon and climate resilient transition required.

Climate Fund’s Update has just completed its first refresh of climate fund data since before the Paris conference. This note highlights some of the most notable developments that we have observed.

The climate finance architecture is still in flux

The new Green Climate Fund (GCF) is now the largest climate fund in the world, and bears a significant weight of expectation as the primary channel for delivering public finance to help low-income and emerging economies implement their climate plans.  Donors are increasingly delivering on their financial pledges, with $2.85 billion now paid into the fund (28% of the $10.26 billion pledged in total).

The GCF will be under much scrutiny this year as it seeks to demonstrate the ability to program transformative and effective projects at scale. The fund approved a first $160 million for eight projects back in September, and has set itself an ambitious target of increasing this figure to $2.5 billion of total approvals by the end of 2016.

Noteworthy increases in pledges for other funds at Paris included $248 million for the Least Developed Countries Fund from eleven donors, $78 million to the Adaptation Fund from countries including Germany, Japan and Monaco, and $339 million to the Forest Carbon Partnership Facility.[1]

The Climate Investment Funds managed by the World Bank and implemented through regional development banks have been making the case for continued funding, despite the original intention of donors that these funds ‘sunset’ once the GCF was up and running. The Pilot Program for Climate Resilience, a component of the CIF, has for instance supported seven new countries to develop investment plans and invited another nine to do the same, despite having no unallocated resources available to put towards potential projects. The CIF argue that their track record and pipeline of further projects justify continued donor support.

Climate funds increase support for solar power and rural energy access

The Clean Technology Fund approved the largest new projects by size over the last six months, with over $570 million in new activities receiving the go ahead. Much of this funding was targeted at scaling up solar power in India, with several projects aiming to develop transmission infrastructure for large solar parks and another $125 million project supporting the National Punjab Bank to provide cheaper-than-market loans for the installation of rooftop solar panels on commercial and public sector  buildings.

Liberia and Vanuatu could not be more different in many respects, but one thing they do share is a very low rate of access to energy. Both countries received approval at the end of 2015 for their first projects under the Scaling-up Renewable Energy Program, which seeks to demonstrate the viability of renewable energy for tackling critical energy access challenges in low-income countries. The $25 million Liberian project seeks to scale-up renewable energy-powered mini-grids in rural communities, while Vanuatu’s $7 million grant will be used to replace dirty diesel generation with hydro-power and to extend the reach of the electricity grid on two of its main islands.

Support grows for diverse adaptation activities in Sub-Saharan Africa

The Least Developed Countries Fund has also been busy recently. Since our last update in October the fund, which provides grants to help the world’s poorest countries adapt to climate change, has approved US$ 69 million for new projects in 11 countries, largely in Sub-Saharan Africa.

These include a $5.2 million grant to strengthen the resilience of ‘Natural Reserve Communities’ in four regions of Senegal. The project will involve reviewing local development plans to incorporate climate adaptation priorities, supporting local governments to establish grant schemes for community adaptation measures, and improving the ability of community-established savings unions to lend for adaptation activities.

Another newly approved project will work with the Environment Protection Agency of Sierra Leone to develop better models for understanding the impacts of coastal climate risks, support the strengthening of related policy and coordination mechanisms, and fund pilot adaptation investments to better protect coastal infrastructure and community assets.

[1] The increased LDCF figure is not yet reported on the Climate Funds Update dataset as the official pledge figures are yet to be published.

What counts? Understanding where we stand on climate finance

Smita Nakhooda, Team Lead for Climate Finance at ODI, sheds clarity on the different ways of counting climate finance flows – with some pointers that could help policy-makers get to grips with this contentious issue.

http://cdkn.org/2015/09/feature-what-counts-understanding-where-we-stand-on-climate-finance/?loclang=en_gb

Key variables for assessing what counts as climate finance

Key variables for assessing what counts as climate finance

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.