Preety Bhandari Coordinator
Financial & Technical Support Programme
UNFCCC
Investment and Financial
Flows to address climate
change
Presented to:
International Seminar on Macroeconomic Impact of Climate Change:
The scale of the challenge
• Agreement on the need for predictable and sustainable financial resources for mitigation, adaptation and technology cooperation.
• Scale of financial resources required is much larger than currently available.
• Number of proposals from Parties that appear to have the potential to meet such requirements.
• Some requirements can be met through the climate change Convention funds and market mechanisms while others can be met through policies that
Scale of the challenge, various estimates
• $ 30 bn/annum for power sector in DCs (WB, 2006)
• $ 1000 bn/annum (global macro economic cost, Stern Review, 2006)
• $ 200-210 bn/annum (UNFCCC, 2007)
• $ 350-3000 bn/annum (OECD Environment Outlook, 2008) • $ 400-1100 bn/annum for
energy sector (IEA, Energy technology Perspective, 2008)
• $ 4-37 bn/annum (WB, 2006)
Additional Investment and Financial Flows for
Mitigation in 2030
Global: 200 – 210 billion USD (0.92% of projected global investment and 0.26% of global GDP in 2030).
Non Annex I Parties: 76 - 77 billion USD (0.86% of Investment and 0.29% of GDP in 2030).
Amounts large in absolute terms, but small relative to GDP and investment.
Sectors
Global, billion USD
Share of NAIP (percentage)
Energy Supply Infrastructure (-) 67 55%
Industry 36 55%
Building 51 27%
Waste 0.9 67%
Transport 88 40%
Agriculture 35 67%
Forestry 21 99.50%
-Additional Investment and Financial Flows for
Adaptation in 2030
25 %
Agriculture, forestry and fisheries
Global: Overall needs identified in this study correspond to 0.2 – 0.8 % of global investment flows or 0.06- 0.21 % of projected GDP in 2030.
Key Findings
• The additional estimated I&F flows needed in 2030
is large compared with the funding currently available under the Convention and its KP, but small in relation to estimated GDP (0.3 - 0.5%) and global investment (1.1 - 1.7%) in 2030:
– Mitigation measures needed to return global GHG emissions to current levels in 2030, require additional I&F flows between USD 200 - 210 billion in 2030 and a shift of about USD 158 billion to
cleaner technologies;
Current Global Investment
Source Share Range
Households Total investment 26% 15 to 30 Corporations Total investment 60% 55 to 75
Domestic funds 21% 15 to 65
FDI 22% 0 to 30
Foreign debt 17% 0 to 30
Government Total investment 14% 10 to 25
Domestic funds 12% 0 to 25
Foreign debt 1% 0 to 10
ODA 0% 0 to 6
Total Total investment 100%
Domestic funds 60% 35 to 100
FDI 22% 5 to 45
Foreign debt 18% 0 to 35
ODA 0% 0 to 6
Investment and Financial Flows Challenge….
• The funds that are currently available under the Convention and the Protocol are small compared to the magnitude of the
needs identified.
• New sources of funding need to be identified.
• Private sources of funding can be expected to cover a
portion of the adaptation costs in sectors where investment in privately own physical assets would be needed.
Current funding instruments
under the Convention and Kyoto Protocol
Current funding instruments include:
– GEF Trust Fund
Strategic Priority on Adaptation (USD 50 million)
– Least Developed Countries Fund (USD 160 million)
– Special Climate Change Fund (USD 67 million pledged)
Carbon market: 64 billion USD 2007
• Clean Development Mechanism: 13 billion USD
• Adaptation Fund
Total
Bali Action Plan: financial resources
• Improved access to adequate, predictable and sustainable financial resources and financial and technical support, and the provision of new and additional resources, including official and concessional funding for developing country Parties;
• Positive incentives for developing country Parties for the enhanced implementation of national mitigation strategies and adaptation action; • Innovative means of funding to assist developing country Parties that
are particularly vulnerable to the adverse impacts of climate change in meeting the cost of adaptation;
• Means to incentivize the implementation of adaptation actions on the basis of sustainable development policies;
• Mobilization of public- and private-sector funding and investment, including facilitation of climate-friendly investment choices;
The need for a clever, financial architecture
• Linking pin between developed countries’ commitments and developing countries’ participation
• Language of the Bali Action Plan:
– Measurable, reportable, verifiable nationally appropriate
mitigation commitments or actions by all developed countries – Nationally appropriate mitigation actions by developing country
Parties, supported and enabled by technology, financing and capacity building
Tool Box/Instrument Panel
• Scaling-up financing under the Convention – Existing sources
• Financial Mechanism
• Market-based Mechanisms
– New international sources of finance • Shifting current investment patterns
– Re-directing private investment through policy
• Removing barriers, providing information, making the polluter pay, creating incentives for innovator
– Re-directing public investment • Domestic priorities
• IFI/donor strategies and commitments • Optimizing financing
– Enhancing public-private partnerships
Some special drawing rights issued could be donated
USD 18 billion initially Donated special drawing
A tax of 0.01 per cent on wholesale currency transactions
USD 15 to USD 20 billion Tobin tax
Creditors negotiate an agreement that cancels a portion of the non-performing foreign debt outstanding in exchange for a commitment by the debtor
government to invest the cancelled amount in clean energy projects
Further research needed Debt-for-efficiency swap
Eligible renewables projects in developing countries could earn certificates that could be used toward compliance with obligations under renewables programmes in developed countries to a specified maximum
USD 500 million Access to renewables
programmes in developed countries
Voluntary allocation of up to 5 per cent of foreign exchange reserves to a fund to invest in mitigation projects
Fund of up to USD 200 billion Funds to invest foreign
exchange reserves
Based on charge of USD 6.50 per passenger per flight
USD 10 to USD 15 billion International air travel levy
Annual average for marine transport rises from 2010 to 2030
USD 10 to USD 15 billion
Annual average for aviation rises from 2010 to 2030
USD 10 to USD 25 billion Auction of allowances for
international
aviation and marine emissions
Any estimate for post 2012 requires assumptions about future commitments
Depends on size of carbon markets post-2012
Annual average for 2008 to 2012
USD 10 to USD 50 million Application of a levy similar
to the 2 per cent share of proceeds from the CDM to international transfers of ERUs, AAUs and RMUs
Potential of Role of ODA / Multi/Bilateral
Support
• Role of ODA and incorporation of climate change in development assistance.
• Role of MDBs in launching initiatives supportive of climate change: scaling up of MDBs assistance, possible support to scale up private sector through guarantees, instruments or investment policy support, possible better allocation of financing.
• Improvement of complementarities and possible expansion of existing funds.
Role of National Policies
• National policies may play an important role in
ensuring that the use of resources, both public and private, is optimized. In particular there is a need for:
– Domestic policies that provide incentive for private investors to adapt new physical assets to the
potential impacts of climate change;
• Optimal combination of mechanisms, such as the carbon markets, the financial mechanism of the
Convention, ODA, national polices and new sources of finance is needed.
• Substantial share in non Annex I Parties; lowest investment per tCO2er.
• The entities that make the investment decisions are different in each sector, and the policy and/or financial incentives needed will vary.
