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Briefing on Climate InvestmentFunds

BangkokApril 1, 2008

Warren Evans

Director, EnvironmentSustainable Development Network

The World Bank Group


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Outline

Progress since Gleneagles (CEIF)

Towards Strategic Framework on ClimateChange and Development (SFCCD)

Proposed Climate Investment Funds (CIF)

Scaling up Carbon Finance


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Meeting Financing Needs

Progress since Gleneagles

Update on the Clean Energy

Investment Framework (CEIF)


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Reporting on CEIF

Sustainable Development @ The World Bank

Progress Report to October 2007 Annual Meetingprovided details on progress on Action Plan for:

Energy for growth, with a particular emphasis on accessto energy in Sub-Saharan Africa;

Transition to a low-carbon development trajectory; and

Adaptation to the impacts of climate change.

Report also outlined an approach to scaling up actions on climatechange and provides a review of options to further reduce thefinancial barriers to support low-carbon and adaptive growth indeveloping countries.


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WBG Key Progress Since Gleneagles Access and Low Carbon Energy (1)

Cumulative energy commitments of over US$11billion for FY06FY08 to date are 57% higher than the

energy lending in FY0305. Energy financing to IDA countries also increased

significantly, from annual average of US$0.9 billionbetween FY03 and FY05 to an annual average ofUS$1.8 billion between FY06 and FY07. But energyaccess remains a policy and financing challenge in allregions, especially in SSA.

Share of support for low-carbon energy projects upfrom 28% in FY0305 to 40% since Gleneagles.

GEF and Carbon Finance contributed US$546 million,or 13 percent.



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WBG Key Progress Since Gleneagles Access and Low Carbon Energy (2)

RE and EE for the period FY05 to H1FY09 wasUS$2.3 billion, exceeding Bonn commitment 1.5years ahead of schedule

CEIF low-carbon work extended to other sectors,such as transport and urban sectors, showing goodpotential.

Two new Carbon FacilitiesCPF and FCPFapproved in September 2007

Pilot program to begin measuring GHG emissions ofthe WBG lending portfolio is underway.



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Adaptation IDA and Climate Changeresults and related work

CEIF argued for the need for a shift in approach to

adaptation from a largely stand alone, project by projectapproach to one where the management of climate risk,current and future, was regarded as an essential part ofdevelopment planning.

IDA and Climate Change report (2007) shows that thepoorest countries are most vulnerable to climate changeimpacts and that such countries need to considerimmediate interventions that will increase their resilienceto climate change.



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Adaptation


Drought Flood Storm Coastal 1ma

Coastal 5ma

Agriculture

Malawi Bangladesh PhilippinesAll low-lying Island

StatesAll low-lying Island

StatesSudan

Ethiopia China Bangladesh Vietnam Netherlands Senegal

Zimbabwe India Madagascar Egypt Japan Zimbabwe

India Cambodia Viet Nam Tunisia Bangladesh MaliMozambique Mozambique Moldova

bIndonesia Philippines Zambia

Niger Laos Mongoliab

Mauritania Egypt Morocco

Mauritania Pakistan Haiti China Brazil Niger

Eritrea Sri Lanka Samoa Mexico Venezuela India

Sudan Thailand Tonga Myanmar Senegal Malawi

Chad Viet Nam China Bangladesh Fiji Algeria

Kenya Benin Honduras Senegal Vietnam Ethiopia

Iran Rwanda Fiji Libya Denmark Pakistan

Note: Bold and grey shaded = high income countries. Light green = IBRD. Non-shaded = IDA-only and blend

countries. The typology is based on both absolute effects (e.g., total number of people affected) and relative effects

(e.g., number affected as a share of GDP). See Annex C for more detail on the indices used.

a. Meters above the seal level.

b. Winter storms.


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Adaptation- Progress since Gleneagles New analytical tools and guidance for assessing and

managing climate risk are necessary. Resources made available through the GEF have been

critical in promoting assessments, capacity building andinitial project by project action, but fall a long way shortof the resources required to support comprehensiveadaptation.

Netherlands, UK, WB partnership on a GlobalEconomics of Adaptation study to understand how toidentify and prioritize adaptation measures and toestimate the financial costs of ensuring nationaldevelopment plans are climate resilient.

JBIC, ADB, WB partnership on Adaptation in majorCoastal Cities.



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Key Lesson since Gleneagles-Thinking of climate change differently Beyond environmentcomplex and overaching problem Affects all aspects of societieseconomy, technology, trade, equity, ethics,

security, relations within and among countries

Financial aspects inceasingly important, both in regard of national budgetsand international transfers- and financing needs are enormous and notbeing met.

Progress on implementing widespread adaptation has been hindered bythe lack of sound estimates of the scope of the task and the financialimplications.

Requires to run on two legs: mitigationto avoid the unmanageable, adaptationto manage the unavoidable



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Call forMDB Suppport on Climate Change

UNFCCC recognizes the need for financial resources- in addition to thefinancial mechanism defined under article 11 of the UNFCCC,paragraph 11(5) stipulates that developed country parties may also

provide and developing country Parties avail themselves of, financialresources related to the implementation of the Convention throughbilateral, regional and other multilateral channels.

Bali Action Plan- launch a comprehensive process to enable the full,effective and sustained implementation of the Convention through long-term cooperative action, now, up to and beyond 2012.

Under Paragraph 1 of Bali Action Plan, Parties decided to address waysto strengthen the catalytic role of the Convention in encouragingmultilateral bodies, the public and private sectors and civil society,building on synergies among activities and processes, as a means tosupport mitigation in a coherent and integrated manner.



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Towards a WBG Strategic Framework onClimate Change and Development(SFCCD)



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Towards a WBG Strategic Framework onClimate Change and Development (SFCCD)

WBG will maintain the momentum forimplementing the CEIF action plan andexpand its strategic thinking on climatechange, in a more comprehensive, cross-

sectoral manner and in alignment with thegrowing needs of developing countries.



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SFCCD Milestones

Requested by Annual Meetings 2007 as an evolutionof the Clean Energy investment Framework (CEIF)

Concepts and Issues development, earlyconsultations through March 2008

Full-scale Consultations April-June

Draft Final Paper July

Web-based consultations, select meetings perdemand August-September

Final paper Annual Meetings in October 2008



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SFCCD is about developmentin thecontext of climate change

Priority of growth, povertyreduction and MDGs

Importance of meetingenergy needs ofdeveloping countries

Development imperativeof helping to adapt to

climate risks Resource mobilization in

addition to the currentODA levels


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Relation to UNFCCC Negotiations

Neutral to any party position

Helping countries understand the impacts of

alternative policies within the UNFCCC Piloting innovative instruments and

approaches that help inform the developmentof a future regime (e.g. Carbon Finance,

IDA15 as a platform for mainstreamingadaptation)

Advocacy and capacity building



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SFCCD Objective

To integrate climate change and development

challenges, without compromising and rather

enhancing growth and poverty reductionefforts through:

Country, regional, and global operationsA multi-sectoral, multi-dimensional approach

The use of a strong and balanced resultsframework

Working with other development partners



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Working With Multiple Partners UN agencies, UNFCCC Secretariat, GEF

A common UN-system approach to CC

Building blocks: mitigation, adaptation, technology, finance

Other MDBs Clean Energy Investment Framework

Bi-lateral donors

Initiatives by countries, sub-national (city) governments,

private sector, NGOs Scaling up WBG engagement based on its specific

comparative advantages



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SFCCD Pillars1. Make effective climate action both adaptation and

mitigation - part of core development efforts2. Address the resource gap through existing and

innovative instruments for concessional finance3. Facilitate the development of innovative market

mechanisms4. Create enabling environment for and leveraging private

sector finance5. Accelerate the deployment of existing and development

of new climate-friendly technologies6. Step-up policy research, knowledge management and

capacity building



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Dual approach to integrating climateaction into development by :

Focusing on multiple

benefits and businessopportunities

Mobilizing

concessional financeto cover additionalcost


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WB lending: in sectors with largestpotential for adaptation and /or mitigation


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Numerous opportunities to make a difference; similar situation in Fand MIGA: GHGEmissions and IBRD/IDA Portfolio, FY07


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Mobilizing Finance to CoverAdditionalCosts


Progress to date: Strong replenishment of

IDA15

Adaptation Fund underspecial arrangement withGEF Secretariat

CIEF: Increased volumeand share of low carbonenergy lending, inpartnership with GEF

IFC leveraged privatefinance by 1 to 5 Robust increase in

Carbon Finance Forest Carbon

Partnership Facility

New initiatives: WBG+RDBs - Climate

Investment Funds (CIF)

Carbon Partnership Facility MIGA carbon credit delivery

guarantee IFC- Structured financing

packages blending CF withloans and guarantees

WB Treasury - bonds atreduced rates to advance toprojects with climate benefits

Climate Risk Insuranceproducts customized todifferent needs


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Addressing the Resource Gap:proposedClimate Investment Funds



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Addressing the Resource Gap:proposed Climate Investment Funds


Scale of action- need to translate lessons from CEIF andlonger-term GEF pilot and prototype projects andcapacity building, into broader programs which will help

transform economies so that the objective of alleviatingpoverty and fostering growth can be met through newways of approaching low-carbon growth and enhancingresilience.

In consultation with interested parties, the WBG andRegional Development Banks (RDBs) are joining effortsto establish a portfolio of strategic CIF.

CIF to complement, build upon and enhance theactivities of other existing instruments, like the GEF, IDA,International Bank for Reconstruction and Development(IBRD) and the IFC.


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Climate Investment Funds: Principles Financing needs for climate change are enormous widespread recognition that all multilateral institutions mustwork with their clients to address this agenda in support ofthe Bali Action Plan.

Climate Change is a development issue, and thereforeMDBs have an essential role to play. The central role of theGEF and UN agencies in the financial architecture toaddress climate change is fully recognized.

The CIF aims to fill a critical gap: scaling up investmentswhile transforming development paths of the countries.This will contribute to promoting an internationalenvironment supportive of a global agreement to addressclimate change.



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Building on New Initiatives

UK Environmental Transformation Fund

US Clean Technology Fund

Japan Cool Earth 50

Strategic Climate Fund

Clean Technology Fund


ADB, AfDB, EBRD, IDB and the WBG joined forces toestablish a portfolio of Climate Investment Funds


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Where We Are


Current status:

Strong interest from several donors

Support from MDBs

Demand from countries

Agreement with GEF and preliminary discussions with UNagencies and UNFCCC

Ongoing Actions:

Consultations with recipient countries

Expand donor base Broader and deeper consultations with others (UNFCCC, GEF,

UN partners, private sector)

Advance design of funds and financial instruments


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Proposed Funds





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The Gap in Mitigation Financing


Absolute financing gap is ~ $100 billion per year

In long-term, could be filled by combination of:

growing market for carbon trading (could reach$100 billion after 2012), and

policy instruments such as carbon taxes

In the interim, concessional financing is criticalto catalyze increased flow of commercial capitalin this area


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Proposed Clean Technology Fund


Accelerates transformation to low carbon economies

Finances cost-effective mitigation of greenhouse gasemissions

Focus on investments that reduce GHGs at scale orhave demonstration impact that will lead to scale

Speed and nimbleness essential, given urgency

Scales-up and replicates lessons of GEF

Focuses on engaging private sector

Complements existing financing

Utilizes the right blend/suite of instruments (concessionalloans, grants, guarantees)


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Proposed Funds





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Proposed Strategic Climate Fund

Composed of Partnerships for targeted

initiatives Pilot Program for Climate Resilience Ecosystem Services

Pre-commercial Technologies

Forest Investment


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Pilot Program for Climate Resilience


IDA is strong platform to promote climate-resilientdevelopment. The successful IDA-15 replenishment was

partly testament to that(+42%)

MDBs have already begun incorporating adaptation concerns

into their programs GEF Voluntary Funds:

Special Climate Change Fund east Developed Countries Fund

GEF Trust Fund Strategic Priority on Adaptation

Adaptation Fund (GEF-administered) could reach: ~ $100-500 million through 2012, can increase to

$2 billion per yearafter2012.

Bilateral donors providing additional resources

ca. $300 million


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Financing gap: UNFCCC estimates that in 2030,$2867 billion/year required to help developingcountries adapt

Knowledge gaps are impediments to integratingclimate risks into development

Until large-scale funds are operational, interimfinancing is necessary to proceed with adaptationmainstreaming in development and to buildknowledge base


Gaps in Adaptation Financing


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Proposed Climate Resilience Pilot Program

Pilot and demonstrate ways to mainstreamclimate risk management and climate resilienceinto core development planning and budgeting

Pilots will be country-led and build on NationalAdaptation Programs of Action (NAPAs)

Report lessons learned to the Board of theAdaptation Fund, and share them widely with

IDA and similar programs in MDBs and UN Explore how to support country efforts throughinternational finance, consistent with ParisDeclaration on Aid Effectiveness


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Proposed Climate Resilience Pilot Program

Board of Adaptation Fund will be invited to participate indesign and governance

Primary decision making at country level

Oversight Committee: developing countries + allrecipient countries, donors, the developing country Co-Chair of the Adaptation Fund Board, MDBs, UNDP,UNEP, GEF, civil society

5-10 pilot countries to receive scaled-up support

Pilot countries will be IDA eligible or SIDS 3-5 year time frame

Technical assistance ($1-2 million)

Additional financial resources to fund investments (up to $100million per country)


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Summary: Key Common Features ofClimate Investment Funds

Support investments based on country-led strategies, and

Be flexible and efficient to respond to country demand andprovide innovative solutions to mobilize private sector

Maximize co-benefits, particularly in relation to povertyreduction and sustainable management of natural resourcesand ecosystem services

Encourage fast-tracking of early action (both mitigation and

adaptation) and market-based solutions to climate change Utilize skills and capabilities of international financial

institutions to raise and deliver concessional climatefinancing at a significant scale



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CIF Issues and Opportunities


In further developing the proposal for climate investmentfunds, the MDBs are engaged in extensive consultationswith key stakeholders, particularly potential recipient

countries and other interested parties and advance thedesign of funds and financial instruments. The final proposal will focus on:

Supporting UNFCCC Bali Action Plan and consistency with ParisDeclaration

Country ownership- low carbon growth strategies and NAPAs to

support national sustainable development earning by doing- for example enhancing knowledge base for

Adaptation Fund operations through pilots Inclusive, effective and efficient governance Optimizing impact


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Pioneering Carbon Finance

World Banks experience

A global pioneer and catalyst in the carbon market US$180 million Prototype Carbon Fund (PCF)initiated in 1999, before the Kyoto Protocol became

effectiveBioCarbon Fund: U UCF ( and use, and use

Change and Forestry) pioneer since 2004, includingfor Reducing Emissions from Deforestation andDegradation (REDD) at the project level

Now managing 10 carbon funds, and over US$2billion

16 countries and 66 private sector companies havemade contributions to funds


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New! Carbon Partnership Facility (CPF)

Objectives Target long-term emissions

Scale up

Support strategic, transformational interventions in power sectordevelopment, energy efficiency, gas flaring, transport, urbandevelopment, etc.

Features Programs, away from individual projects

Partnership between buyers and sellers Fostering both demand and supply in uncertain market

Target size: 5 billion over5 years; first tranche: 350 million


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New! Forest Carbon Partnership Facility (FCPF)

Objectives Pilot system of positive incentives for post-2012 that includes

REDD

Remain neutral to UNFCCC negotiations Catalyze / leverage private sector investment to enable scaling

up: $300 million will not save worlds forests

Features Balanced governance structure (developing countries,

industrialized countries and carbon fund participants havebalanced voting rights on Participants Committee)

Voluntary participation

Two mechanisms $100 million readiness fund for capacity building

$200 million carbon fund for purchase of emission reductions


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Forest Carbon Partnership Facility (FCPF) Argentina Bolivia Cameroon Central African Republic Colombia Costa Rica Dem. Republic of Congo Ecuador El Salvador Gabon Ghana Guatemala

Guyana Indonesia Kenya aos iberia Madagascar

Malaysia Mexico Nicaragua Pakistan Panama

Papua New Guinea Paraguay Peru Philippines Republic of Congo Senegal Sierra eone Sudan Thailand Uganda Vanuatu

34 Requests

forParticipation/Cooperation


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Thank You

if you want a copy of thispresentation or the next CIF designdocument, then email me at

[email protected]

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