Climate Finance Gaps and Challenges

Yuqing Ariel YU

Senior Policy Researcher

Institute for Global Environmental Strategies

Regional Collaboration Centre for the Asia-Pacific Region

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Regional Collaboration Centre for the AP region

• RCC Bangkok is a partnership between the United Nations Framework on

Climate Change (UNFCCC) Secretariat and the Institute for Global Environmental

Strategies (IGES).

RCC Bangkok Institute for Global

Environmental Strategies

604 SG Tower 6F, 161/1 Soi

Mahadlek Luang 3,

Rajdamri Road, Patumwan,

Bangkok 10330, Thailand

+66 2 651 8794

RCCbangkok@unfccc.int

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Synergy and difference between climate finance and SD finance

• Conventional development interventions (i.e., sustainable livelihoods, social

protection, disaster risk reduction) can strengthen resilience and adaptive capacity.

• The Busan Building Block on Climate Finance and Development Effectiveness (2011):

To ensure effectiveness of CF, its use needs to be led and owned by recipient countries and

recipient countries should be use the finance in line with their strategic priorities.

Climate change should be fully integrated into national and sectoral development plans

and be channeled into public financial management systems.

• The new and additional principle:

Funding should be additional to existing ODA commitments to avoid the diversion of

funding for development needs to climate change actions.

Existing aid classification indicators are insufficient to separate climate finance classified as

ODA from national contributions labelled as non-ODA.

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Gap 1: Funding scale gap

• Cancun Agreements: mobilizing jointly USD 100 bn per year by 2020

• Flows to developing countries (SCF, 2014):

Through public institutions: USD35-50 bn

All financial flows (including both public and private flows): USD 40-

175 bn (close to the lower bound)

• INDC funding request by 2030 (UNEP-DTU, 2015):

Mitigation: USD 1.447 trillion

Adaptation: USD 1.4 trillion

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Gap 2: Definitional gap

• UNFCCC does not have a definition of climate finance.

• Parties use different operational definitions for reporting.

Developed Parties: Common tabular format

Clarity on point-of-measurement (committed vs. disbursed)

Definition of multilateral climate fund (cc-specific vs. cc-related )

Clarity on core contribution

Definition and method of accounting private finance

Developing Parties: No common format

Receipt, types, and use of climate finance

Domestic strategies for scaling up climate finance and

enhancing the enabling environment

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Gap 3: Data gap

• The lack of reliable project-level data for private investments beyond

renewable energy results in a heavy bias toward renewable energy in

the global landscape of climate finance.

CPI’s Global

Landscape

Governments

DFIs

Climate funds

Public

Methodology

Source &

intermediaries

Private Renewable energy Project

Result (USD bn)

Gov’t: 12-19

DFIs: 131

CFs: 2

RE: 243

=Total: 391 + EE: 90-365

(IEA, 2015;

HSBC, 2014)

Forestry: 4.2

Flow

?

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Gap 4: High debt costs for climate/SD/green projects

1. High lending interest rates 2. Excessive reliance on internal funds

0 10 20

EAS

PAS

SAS

Lending interest rate [%]

OECD

a)

OECD

50 70 80 900 30 60 100

EAS

10

PAS

Share of internal funds[%]

SAS

b)

4020

Max75%Median25%Min

50 70 80 90 100

EAS

60

PAS

Requiring collateral [%]

SAS

OECD

c)

3. Heavy burden imposed by collateral requirements

150 180 240 270 30060 120 210 330 360

EAS

90

PAS

Value of collateral [%]

SAS

OECD

d)

Source: Enterprise Surveys (2014); World Bank Data (2014). Statistics refer to the year 2013 or the most recent year available.

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Gap 5: Uneven thematic distribution of finance

• Adaptation finance ranges from 11% to 24% (SCF, 2014).

There is evidence that adaptation finance has been increasing.

The Climate Public Expenditure and Institutional Review (CPEIR)

notes that spending patterns have changed over the years. In fact,

while the greatest share of expenditure was initially tilting toward

adaptation in the countries assessed, the progressive trend is

toward mitigation (UNDP, 2015).

In July 2015, a group of MDBs and the International Development

Finance Club adopted the ‘Common Principles for Climate Change

Adaptation Finance Tracking’.

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Gap 6: Uneven geographic distribution of finance

• The largest share (38% to 53%) of funding from multilateral CFs, FSF and

climate-related development assistance has been directed to the

countries of the AP region (SCF, 2014).

• The LDCs collectively represented 10% of the total finance received.

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

4000.0

4500.0

5000.0

Ind

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Ban

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Ch

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Pak

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anka

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USD

mill

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(cu

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lue)

Source: CFU (2014); IGES et al. (2013)

• Renewable energy investments

mainly take place in China (USD

83.3 bn), Japan (USD 35.7 bn), and

India (USD 7.4 bn) (GTR, 2015).

• The other 10 AP countries

attracted USD 100 million in

renewable energy finance in 2014.

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Gap 7: Institutional arrangement gap

• The Climate Public Expenditure and Institutional Review (CPEIR) is one

of the few known studies that review public spending on CC activities

and institutional responsibilities in selected developing countries.

Thailand

Source: UNDP (2012)

19 ministerial CCC;

11 non-ministerial

agencies

Under utilized

The mechanism that oversees

coordination on how resources

might be allocated and

effectively utilized among

gov’t agencies is missing.

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INDC country map

• By 1 October, 119 INDCs were submitted, covering 146 countries and 85-88 per

cent of global GHG emissions in 2012.

Source: UNEP (2015)

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INDC and emissions gap

• INDCs present a real increase in the ambition level. However, the submitted

INDCs are far from enough and the emission gap in 2025 and 2030 will be

significant and ambitions need to be enhanced urgently.

below3.5 ℃

<3-3.5 ℃

Source: UNEP (2015)

• Further actions for closing the gap:

Enhanced EE in industry, buildings and transport

Expanded use of renewable energy

International collaborative initiatives (i.e., C40 Cities): 0.75-2 GtCO2e in 2020

Forest-related actions: REDD+ theoretical potential up to 9 GtCO2/yr

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A regional approach for CC cooperation and SD

• Climate specific regional initiatives: Asia Pacific Partnership on Clean Development

and Climate (APP); Asia Pacific Adaptation Network (APAN)

• Regional cooperation on energy: regional gas grids in East Asia; regional

cooperation on hydropower; the Pacific Appliance Labelling and Standards (PALS)

program in Pacific Island Countries

• Technology-focused CC cooperation: ASEAN+3 Energy Security Forum; APEC Energy

Working Group

• Regional hubs for technology cooperation: Asia Energy Efficiency and

Conservation Collaboration Centre (AEEC), the Asian and Pacific Centre for Transfer

of Technology (APCTT).

• Reginal cooperation could play an enhanced role, particularly if it explicitly

incorporates mitigation objectives in trade, infrastructure, and energy policies and

promotes direct action at the regional level (IPCC, 2014).

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Thank You Email: yu@iges.or.jp