PowerPoint Presentation

Combining public financing and market-based instruments to improve climate resilience

Best practices in Latin American cities

Marcela Tarazona, Senior Consultant, Oxford Policy Management15 May 2012

1

1OutlineIntroductionAn integrated approach to urban climate resilient interventions Typology of funding sources available to citiesNational sourcesLocal sourcesPrivate sectorInternational finance Recommendations

22IntroductionStrategic importance of cities:Occupy 1.5 per cent of the worlds area Produce half of the worlds GDP75% of LACs population lives in cities

Cities and climate change:More than 80% of the worlds GHG emissions80% of global adaptation costs will be urban

Cities are not receiving sufficient access to climate finance

33OutlineIntroductionAn integrated approach to urban climate resilient interventions Typology of funding sources available to citiesNational sourcesLocal sourcesPrivate sectorInternational finance Recommendations

44Integrated approach to urban climate resilient interventions Cities need an integrated approach to climate change intervention that combines a set of financial instruments and resources

Climate finance can provide important additional resources for climate change activitiesImprove access to national sector programmesExpand local fiscal resources based on prioritized sector investments within urban development plansIncrease private investment and PPPsAdd international finance (promising new mechanisms)Use Municipal Climate Change Action Plans as a strategic and operational instrument to integrate investments and diverse sources of finance

55OutlineIntroductionAn integrated approach to urban climate resilient interventions Typology of funding sources available to citiesNational sourcesLocal sourcesPrivate sectorInternational finance Recommendations

66Typology of funding sources available to citiesSources of climate funding for cities can be divided in four broad categories:National sourcesLocal sourcesPrivate sectorInternational finance

77Sources of national financeImprove access to national sector programmesAccess to national programmes in various sectors to fund local projects (solid waste, transportation, environment, health, and disaster risk management )Access to lines of credit through national development banks

88Expand local fiscal resourcesExamples of local economic instruments and policies in key sectors

9MitigationEnergy, efficiencyTrading of emission reduction by energy savings (ETS); reduction of fuel subsidiesEnergy, renewableSubsidies to clean energiesSolid wasteCollection charges for solid waste pickupSustainable transportRoad pricing, tax incentives, parking pricingUrban greeningSubsidies to green buildingsWaterUser fees for wastewater treatment, metering and pricing to encourage water conservationWaste waterUser fees for municipal waterLand useZoning for high density, property taxes for energy efficient high density developmentAdaptationAgricultureTax incentives, environmental labelling lawsClimate resilienceLocal economic development strategiesDisaster risk managementProperty taxes in most vulnerable areas; relocation through buy out programmeLand use and forestryProperty taxes in green areas9Increase private investment and PPPsInsurance:Cover the risks of high-severity, low-frequency events for individuals, public institutions, and private entities (MultiCat for Mexico)

PPPs: Used for public services: public transport, water supply, infrastructure management (highways)

Guarantees:Used to improve investor confidence in cases of risk (Barranquilla, Colombia, $63M, Sociedad Acueducto / IFC credit guarantee of 25%)10In Barranquilla, Colombia, the company Sociedad Acueducto extended water and sewerage services to the southwest area of the city, connecting 350,000 low-income inhabitants to the network. In order to make this investment, the company decided to issue a long-term, local currency bond of $63 million to refinance its debt. To allow bond maturity of up to ten years in the local capital market, the company sought credit enhancement through the IFC in the form of a partial credit guarantee for up to a maximum of 25 percent of the principal amount.

In 2006, the Mexican government insured its catastrophe reserve fund, the Fondo de Desastres Naturales (FONDEN). The resulting contract was linked to a parametric trigger in terms of magnitude and depth of seismicity for the three-year period 200709. In 2008, the Mexican government spent $1.2 billion from the reserve fund to cover rescue and rebuilding operations after Hurricanes Stan and Wilma. The government then decided to work with the World Bank on a new catastrophe bond. As a result, Mexico successfully established the MultiCat Mexico 2009, with the World Bank acting as arranger. 10International finance: main climate funds that benefit urban climate resilient investments FundSizeGoalsCDM11 funds and facilities entrusted with $2.5 billionEvolving mechanism tool that should reactivate regulated carbon markets benefiting urban climate investments. Cities can access CDM funds through the sale of certified emission reductions (CERs) to carbon funds.Climate Investment FundsClean Technology Fund (CTF): $4.5 billion programmed for 13 investment plans Scaled-up demonstration, deployment, and transfer of low-carbon technologies. Major urban mitigation (transport and energy) investments in Mexico and upcoming in Chile.The Strategic Climate Fund: Pilot Program for Climate Resilience (PPCR) ($1 billion)Urban upstream planning support and city-based investments possible to integrate into national plans now being formulated in agreed pilot countries.Forest Investment Program ($587 million for eight pilot countries)Program to Scale up Renewable Energy for Low Income Countries (SREP, $318 million for six pilot countries). UNFCCC GEF-administered Special FundsLeast Developed Countries Fund (LDCF): $223 millionPreparation and financing of implementation of National Adaptation Programs of Action to address the most urgent adaptation needs in the least developed countries.Special Climate Change Fund (SCCF): $148 millionAdaptation and mitigation projects in all developing countries, with a large emphasis on adaptation.Adaptation Fund$300600 million by 2012Support activities that reduce the adverse effects of climate change (pending their applicability to urban settings). 1111International finance (cont.)However, there are barriers for cities to access climate funds (see next presentation)Most international climate funding will be channelled through national governments Limited awareness of the funds existence and its componentsLong implementation period Difficulty to comply to monitoring reporting and verification (MRV)Need of co-financingDifficulties in project development

12Climate change is a global public good.

12International finance (cont.)Multilateral and Bilateral Development Banks

IADBTechnical cooperation and lending in key urban sectors (transport, WSS, energy, housing)New Emerging and Sustainable Cities Initiative (ESCI): Environment / climate changeUrban developmentFiscal sustainabilityWorld BankTechnical assistance (GHG index, Energy efficient cities grants, Eco2 cities pilot audit, probabilistic DR assessments); loans (DR financing, urban environmental policy, CAT-DDO, solid waste management)CAFThrough the Latin American Carbon, Clean and Alternative Energies Program (PLAC+e), CAF contributes to the mitigation of the problems arising from climate change and promotes the use of clean and alternative energies in Latin America.

1313OutlineIntroductionAn integrated approach to urban climate resilient interventions Typology of funding sources available to citiesNational sourcesLocal sourcesPrivate sectorInternational finance Recommendations

1414RecommendationsIntegrated approach to urban climate resilient interventionsClimate Change Action PlansOutline general climate resilient development goals Complemented with other sector planning documentsCombine sourcesUse Municipal Plans as a strategic and operational instrument to integrate investments and diverse sources of finance

15

15RecommendationsFinance tends to move toward cities that are better managed and that provide more comprehensive and consistent information to the publicCreate an enabling financial environment access to climate financeAssessment, measurement, reporting, and verificationRegulation, plans, and policiesFiscal incentivesInducement prizes and public recognition of corporate responsibilityCities should be recognized as important potential partners and implementers of climate resilient projects in NAPAs and NAMAS

16Urban planning efficient combination of resources Finance tends to move toward cities that are better managed and that provide more comprehensive and consistent information to the public. Create an Enabling Financial Environment for AdaptationAssessment, measurement, reporting, and verification: demonstrate commitment to evidence-based and transparent adaptation investment; demonstrate the logic of public investments and attract additional fundingRegulation, plans, and policies: raise and maintain confidence, demonstrate a commitmentFiscal incentives: cover the incremental costs of adaptation, encourage climate resilient investments Inducement prizes and public recognition of corporate responsibility

Cities should be recognized as important potential partners and implementers of climate resilient projects in NAPAs and NAMASAccess to international funding

Assessment:Standard urban risk assessmentsStandard GHG emissions baselinesCity metrics (the Global City Indicator Facility)City incentive funds established subject to rigorous MRV of both financial flows and impact to demonstrate the feasibility and effectiveness of the approach.City infrastructure investment plans based on low-carbon solutions (NAMAs) and NAPAs.Percentage of climate finance (e.g., the PPCR) could be allocated to urban centres.

16Example 1: Sustainable Transport and Air Quality Program (STAQ) (GEF, US$20.8 million):

One regional level operation and three country operations (Argentina, Brazil and Mexico)Goalsto reduce greenhouse gas (GHG) emissions growth rates through the promotion of an increase in the patronage of less energy intensive transport modes in citiesto induce policy changes in favour of sustainable transport projects

The project includes the following cities:Cordoba, Posadas, Rosario and Tucuman in ArgentinaCiudad Juarez, Leon, Monterrey and Puebla in MexicoBelo Horizonte, Curitiba, Sao Pablo in Brasil

17

17Example 2. Climate Finance Facility Project: Monterrey II Project on Abatement of Greenhouse Gases in Waste ManagementEmission reduction purchase agreements (ERPAs) with BENLESAReductions in GHG emission from waste disposal in the city of MonterreyCapturing methane and using it as a fuel for power generation or through flaringBuy 1 million carbon credits generated through a biogas plant in Monterrey, Mexico (CDM - Danish Carbon Fund)

18

18