B. Sources and instruments over time
94. Given the scale of the challenge of mobilizing US$100 billion per year by
2020 and the requirements for administrative practicality, many of the
sources identified by the Advisory Group will need to be built in advance of
2020 in order to allow for sufficient time to develop both the capacity to
deliver and the capacity to use wisely the flow of funds made available. The
Advisory Group acknowledges the collective commitment made by
developed countries to provide resources approaching US$30 billion in “fast
start” climate finance during the period 2010
2012 to help meet the
adaptation and mitigation needs of developing countries.
95. Several of the sources examined by the Advisory Group could be operational
relatively quickly. In particular, direct budget contributions and other public
sources which build on existing domestic revenue-generating instruments
could be triggered earlier, depending on political will. The scale-up speed of
these instruments would naturally depend on the extent to which
Governments would dedicate resources collected through these mechanisms
to international finance and on the time pathway of carbon reduction
commitments. Similarly, the multilateral development banks and the regional
development banks, together with the United Nations system and bilateral
agencies, could respond relatively quickly to a substantial increase in demand
for climate-related finance. The United Nations system, for instance, has the
relevant experience, presence and mandate to assist countries in developing
their own national capacities to remove market development barriers
(information, regulatory, financial and administrative) and to access climate
finance. On the private finance side, flows of investment in mitigation and
adaptation activities will depend on a mix of Government policies, including
regulation, standards, support for new technologies, implicit and/or explicit
carbon pricing, improved investment climate and the availability of risk-
sharing instruments. In some cases, confidence and instruments could be built
rapidly, but in other cases more time for implementation may be required.
96. Time scales also depend, inter alia, on whether the resources would be
generated primarily at the national and/or regional levels or would require
more coordinated international action. Instruments which are purely
domestic, such as the removal or redirection of fossil fuel subsidies, could
potentially scale up more rapidly than those which require significant
international coordination. Among instruments that could potentially deliver
resources in the short to medium term are carbon-related revenues, such as
public revenues from domestic carbon markets, carbon taxes, carbon market
offsets, wire charges and the removal or redeployment of fossil fuel
subsidies; contributions from multilateral development banks; direct budget
contributions; and public finance that is used to leverage private investments.
Among instruments that might deliver only in the medium to long term are
public revenues from international carbon markets, aviation and maritime
policy measures, financial transaction taxes and special drawing rights.
C. Spending wisely
97. The focus of the work of the Advisory Group has been on revenue-raising
and examining the key criteria for assessing the different sources; however,
spending resources wisely is critical to building the mutual confidence
needed to mobilize long-term finance. Getting early financing right and then
establishing credible plans for long-term financing are critical to starting this
confidence-building process in a way that accelerates practical learning and
strengthens the trust and delivery capacity of all parties.
98. It is clear that there are important links between resource mobilization efforts
and how such money is spent. On the one hand, developing countries need
predictability in resource commitments before they can commit to systematic
transformation in key sectors of their economies. On the other hand,
developed countries can only be expected to scale up climate finance if they
are confident that these monies will be spent wisely. New climate finance
instruments – with clear, simple links between payments and performance
(for instance, ecosystem services) or between risk transfer mechanisms and
better planning controls – can reinforce this dynamic. Some principles of
spending wisely include:
(a) Ownership on behalf of developing countries will be crucial. Action
should be consistent with country priorities, guided by national or
regional adaptation and mitigation strategies;
(b) Reliable and predictable long-term funding commitments are
necessary to enable the development and implementation of long-term,
consistent adaptation and mitigation strategies in developing countries;
(c) Accountability and transparency with regard to both spending in
developing countries and financial flows from developed countries
will enable reciprocal trust to improve over time;
(d) Programmes need to be responsive to the challenge of climate change.
99. The present report therefore includes some cases of climate change financing,
without prejudice to the UNFCCC negotiations, such as on monitoring,
reporting and verification regimes and institutions. The cases cover key areas
related to enhanced action on mitigation, including finance to reduce
emissions from deforestation and forest degradation, adaptation, technology
development and transfer, and capacity-building. The regional development
banks, the World Bank, the United Nations system, other multilateral
institutions and the REDD+ partnership will be crucial in scaling up national
appropriate climate actions, for example via regional and thematic windows
in the context of the Copenhagen Green Climate Fund, such as a possible
Africa Green Fund.
Scaling up investment in Africa: providing the means to scale up public and private
support for adaptation and mitigation efforts, and towards a high-growth path in Africa
on a low-carbon basis
Within the global strategy, make adequate provision for Africa by providing additional
resources targeted at adaptation, climate-resilient infrastructure, clean energy and climate
action in general, enhancing delivery through African regional, institutional and innovative
The delivery of finance for adaptation and mitigation needs to be scaled up through regional
institutions, given their strong regional ownership.
100. The cases are Guyana’s low-carbon growth strategy, the South Africa Wind
Energy Programme, the African Water Facility, the Caribbean Catastrophe
Risk Insurance Facility and Indonesia’s Geothermal Power Development
Programme, which are described in boxes throughout the report as well as
covered in more detail in annex III.
The Caribbean Catastrophe Risk Insurance Facility: managing adaptation needs
with efficient use of funds
The Caribbean Catastrophe Risk Insurance Facility is a multi-country risk pool that provides
insurance solutions against natural catastrophes such as hurricanes and earthquakes. In addition to
providing traditional insurance products, the Facility strengthens the fact base for decision makers
regarding the magnitude of future risks while reducing uncertainty and providing guidance on how
to prioritize activities among adaptation projects, insurance and risk-bearing.
This effort followed the “economics of climate adaptation” approach, which is structured around
five questions, each driving a different set of analyses:
(a) Where and from what are we at risk?
(b) What is the magnitude of the expected loss?
(c) How could we respond?
(d) How do we execute a response?
(e) What are the outcomes and lessons of implementation?
The first three steps have already been carried out in selected Caribbean States and form the basis
for later execution and evaluation.
The project shows how public resources can be spent in innovative and efficient ways to reduce
reliance on ODA spending by:
Considering specific country circumstances, as it was determined that there are considerable
differences in terms of future expected losses and optimal adaptation strategies, even among
small island developing States in the same geographic region;
Applying rational economic choice to prioritize measures (not a one-size-fits-all solution);
Using different approaches based on efficiency and cost (e.g., insurance versus building sea
V. Combining instruments
101. The assessment of potential sources provides a disaggregated picture of what
each individual source might provide on its own. Based on the assessment,
there is clearly a range of promising sources, each with different strengths
and weaknesses. There are, however, no individual sources that can
simultaneously deliver the US$100 billion target and meet the full range of
end-use requirements. There are also significant substitutabilities and
complementarities among different sources. Finally, there are some key
variables, notably the carbon price and the willingness to weight policy
towards more international approaches, which may have correlated effects
across multiple sources.
A. Sources and end-use
102. A combination of sources will be required to address effectively different
types of climate actions. For example, climate activities that generate direct
revenues might be suitable for some mix of loan finance and carbon market
finance (e.g., low-carbon electricity). Other climate activities, (e.g., coastal
flood defences) may require long-term grant elements or, as in the case of
REDD, may need to evolve from an upfront public finance model to
predictable financing based on payments for ecosystem services. Yet others
may need combinations of different models of public-private partnership.
Private flows are likely to play a key role in entrepreneurial and technology
transfer activities and in the risk-sharing needed to finance new low-carbon
business models and investments. Indonesia’s geothermal power programme
provides a case showing how these different sources can be combined.
Indonesia’s Geothermal Power Development Programme: utilizing bilateral,
multilateral and private financing for mitigation benefits
The programme is a package of multiple financial instruments designed to help finance immediate
scale-up needs in Indonesia for geothermal power. The package is a mix of financing from
multilateral development banks and other assistance, including:
Concessional loans of US$300 million from the Clean Technology Fund;
US$500 million in loans from the Asian Development Bank and the World Bank;
US$4 million in grants from GEF;
Bilateral assistance from Germany, the Netherlands, Japan, the United States of America,
France and Australia;
An additional US$2 billion expected to be mobilized from a range of other sources.
The programme is expected to deliver greenhouse reductions of about 3.2 MtCO2 equivalent
per year, resulting in cumulative emissions savings of 63 million tons over the typical 20-year
The project shows how multilateral development banks can play an integral role in attracting
sufficient investment volume through the ability to leverage the invested public money and crowd
in further private investment by reducing upfront financial and technological risks. The scale of
bilateral, multilateral and private financing will emerge to meet project-by-project needs, rather
than being determined ex ante.
B. Combining public instruments
103. Instruments to generate net public funds cannot simply be added together, but
need to take into account positive and negative spillover effects.
104. The link between domestic carbon regimes and international transportation
levies is an example of a positive spillover effect. Domestic carbon regimes
which have broad coverage make it easier to extend that coverage to the
international transport sectors. Extending coverage beyond domestic sectors
would be both fiscally efficient and consistent and more politically
acceptable. Increasing the capacity of multilateral development banks to
provide additional resources is a second example of a positive spillover effect,
since for each dollar of new resources, multilateral development banks are
potentially able to increase international lending for climate investments by
between US$3 and US$4,
equivalent to US$1.10 in net flows based on
methodologies proposed by some members.
105. At the other end of the spectrum, the overlap between AAU and ETS auction
revenues is the most obvious example of substitutability. Showing both
instruments would amount to the double counting of likely revenue. There
are also many other instances of potential double counting of likely revenue.
For example, many of the instruments that would tax carbon emissions (e.g.,
wire charges or a direct carbon tax) would amount to double counting if
combined with a carbon-market-based auction revenue regime. On the other
hand, instruments which simply remove existing distortions (e.g..,
elimination of fossil fuel subsidies) or are based on underlying public
ownership rights (e.g., reallocation of energy sector royalties) could
potentially be combined with instruments that tax carbon emissions.
106. Finally, there is a question of dynamic efficiency. Even if it were possible to
tax a range of different (non-carbon) sources and/or to mobilize additional
funds through direct budget contributions, there is a broader macro
consideration about the potential impact such an approach might have on
developed country growth.
107. The overall magnitude of public flows is influenced by: (a) the selection of
domestic instruments; (b) the extension of these instruments to cover
international sectors; (c) the degree of revenue allocation to international
climate finance; (d) for the majority of instruments considered, the carbon
price; and (e) the political appetite to mobilize multiple sources. There are
many possible combinations of new, potentially acceptable sources, which
could result in mobilizing several tens of billions of dollars of public finance.
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