Against this background, my ministry is committed to mainstreaming environmental finance into development finance. KfW has already been very active in promoting environmental financing through the financial sector, especially in the area of energy efficiency and renewable energy. After launching a number of green finance projects in late 2008, KfW dedicated its annual financial sector symposium to environmental finance.
Environmental finance can and should serve as an interface to other sub-sectors of the promotion of the financial sector such as microfinance, housing finance or agricultural finance.
Mainstreaming Environmental Finance into Financial Markets – Relevance, Potential and
Working through the financial sector can also have a strong impact on the living conditions of the marginalized, enabling environmental finance to become a tool for poverty alleviation. Due to the relative amount of the costs and the limited resources available, the demand for environmental investments is almost automatically converted into the demand for environmental financing. This translates into a strong preference for interest rates in the lower segment of the market.
How and to what extent this demand could be met by the supply of the financial sector is examined in the next section.
Mainstreaming Framework Conditions for Environmental Finance – The Role of the
Impact Effectiveness
Resource Allocation Efficiency
Burden sharing efficiencyDESIGN
The Ministry of Energy in Tunisia convinced the Tunisian Ministry of Finance of the benefits of introducing a system subsidy for solar water heaters. Examples of the first category are solar panels, solar water heaters and, on a micro scale: compact fluorescent lamps. 21 ESCOs are companies that carry out energy audits and invest in the identified package of EE measures in the beneficiary's factory.
With the help of the donor community and foreign consultants, governments can provide cost-shared capacity building (i) in the design and management of new environmental finance and (ii) in the basic technical assessment of EE&RE projects.
Mainstreaming Environmental Finance Markets (I) – Small-Scale Energy Efficiency and
Renewable Energy Finance
High perceived and real credit risks for end-users, lack of collateral provided by EERE facilities and difficulties in establishing reliable financing structures for loans discourage CFIs from entering this market. When the end user is the borrower, the project is implemented with two agreements, one for the installation of the project in hand and services between the end user. FI assumes all credit risk of the end user, in which it has expertise, while all technical and performance issues are handled directly between the contractor or energy service company (ESCO)4 and the end user.
The end user assumes responsibility for maintenance, repair, insurance, taxes and risks of loss or damage associated with the equipment. Provisions for equipment operation, maintenance services and warranties can be arranged in an end user/contractor agreement. It includes end-user credit risk because the ESCO's ability to repay its debts is highly dependent on end-user payment performance.
For most EERE projects, equipment represents 60–65% of the total project cost; EERE projects have high shares of engineering, development, and installation costs.6 EERE devices are installed in end-user equipment, for example, lighting and motors and industrial process equipment, and are often difficult and uneconomical to remove and used. elsewhere. For these reasons, EERE project lending is most often not based on the asset value of the equipment, but on the creditworthiness of the energy end user. Due to this characteristic, the willingness of the end user to pay EERE loans has increased.
Second, EERE projects save money and these savings improve the end user's ability to repay. Marketing strategies should include partnering with EERE equipment vendors, ESCOs, utilities and end-user associations to generate business flow.
Energy Services or Equipment
For the FI, the supplier financing program creates a stream of financing activities, pooling demand for many small projects. The supplier markets the FI's financial services and performs certain financing functions that reduce the FI's transaction costs. In some cases, the supplier may provide credit support, allowing the FI to offer financing to more customers.
The customer pays for the equipment over time, matching payments with energy cost savings benefits.
Loan/Lease
Or does the DFI share the credit risk of the subloans financed by the line of credit?. a recourse loan is much more common and much easier to create and manage. If DFI loans are fully allocated to FIs, the only constraint the program would address is the lack of available capital in the market rather than the credit risk of project loans. Subordinated debt may be assumed in partnership with senior lenders and is thus included in the senior lender's lending capabilities.
The last example is taken from the area of small-scale renewable energy (OE), which is an important part of the area of clean energy. The winning ESCO pays the upfront cost of the renovation project at no cost to the building owners. The city earns a service fee from property owners to cover the cost of the program.
The public sector can be a leader in the development of the ESCO industry, as is the case in the US, Canada, Europe and other markets where ESCOs have matured. A new World Bank initiative to develop and finance EE investment for small and medium-sized enterprises (SMEs) is an example of a business model for an EE financing program. The LRF was deposited with the Development Bank of the Philippines (DBP), which acted as an escrow agent.
An estimated default rate can be planned in the credit structure of the portfolio as a whole. They are best used when the loan portfolio consists of a large number of smaller loan transactions, where a statistical approach can be taken to the credit structure of the loan portfolio as a whole. At Barclays' option, this instrument may be redeemed at the end of the first seven-year loan period to prepay the loan.
It can then be estimated that only part of the guarantee obligations will actually be called up.
The Roles of Weather Insurance and the Carbon Market
The impacts of climate change will only increase the vulnerability of the poor by increasing the frequency and/or severity of extreme weather events. Climate change presents additional challenges for weather markets, particularly in designing sustainable weather index insurance products that are affordable to poor households. These include mitigating some of the challenges that climate change poses to weather insurance markets, which in turn could increase access to weather index insurance for the poor.
Few models of the economic cost of climate change are adequate to examine the impact of extreme weather events (IPCC, 2007a). Learning from such innovations should improve the ability of weather index insurance programs to more efficiently manage the challenges in pricing these products, given the uncertainty associated with climate change. Exchange trading can help weather index insurance overcome some of the problems that climate change creates for these insurance products discussed in section 3.3.
In this section, we discuss specific challenges for implementing weather index insurance programs in the context of increasing weather risk due to climate change. If climate change increases weather risk, the price of weather index insurance will increase, significantly affecting the ability of poor households to purchase these products. It should therefore be clear that climate change poses a significant challenge to creating sustainable weather index insurance products for the poor.
These factors should increase the participation of the poor in carbon and weather markets and improve their ability to address climate change. Climate Change 2007: The Physical Science Basis, Working Group I Contribution to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC). Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change.
UNFCCC (United Nations Framework Convention on Climate Change) (2007) Uniting on Climate: A Guide to the Climate Change Convention and Kyoto Protocol.
Mainstreaming Impact over Time – Who Measures What for Whom?
Many of the key market barriers identified in the other chapters are informative in nature. In section 4, the authors present the information-finance context in the context of CDM and examine to what extent the project developer could take on the role of broker. In fact, this close connection is at the heart of the general idea of environmental markets.
In the following, the implications of such a "second degree" interpretation of the guiding question will be addressed in more detail. It is likely that the real reason for the lack of funding lies not directly in the level of the objective risks associated with environmental projects, but rather in the difficulty of assessing those risks. A specific problem in the context of environmental finance and associated transaction costs are investments of the smallest scale, such as simple insulation projects in the residential sector.
The most important actors in this area are international carbon market regulators, national governments and development finance institutions. These barriers are in principle no different from those discussed in the context of the supply of finance in general. Given the peculiarities of the CDM market, there is not only a great need, but also a profitable potential for financial services in this market.
Thus, it is likely that as the market matures, the volume of debt financing will increase. Many CDM observers have pointed out that the procedural and methodological rules of the CDM need to be improved in order to reduce the obstacles hindering the development of the PoA.
