World Bank Climate Finance - Module 1a

Climate Finance: Innovative Approaches In
Supporting Climate Action

Module 1
Lesson 1: Key Concepts and Examples of Climate Finance in
Practice
Presentation Script
Presentation Script
Module 1, Lesson 1: Key Concepts and Examples of Climate Finance in Practice Presentation Script
Welcome to this e-course on Climate Finance. A large part of solving the climate change
challenge is using climate finance in a transformative way to enable the transition to
low-carbon and climate-resilient growth. In this course, you will learn key concepts and
draw from illustrative examples to build a working knowledge of climate finance.
Click Next to begin.
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In this first module of the course, you will become familiar with the key concepts of
climate finance, investment needs and financial flows. You will cover this material in
three lessons, shown here. Take a moment to become familiar with the key questions
addressed in Module 1.
Note that you can access the menu and objectives of this particular lesson at any time
by clicking in the upper-left of your screen.
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First, let us look at what is currently happening with emissions and surface temperature
- to fully understand the climate change challenge. According to the recently published
report by the Intergovernmental Panel on Climate Change (or IPCC), the atmospheric
concentrations of three major greenhouse gases - carbon dioxide, methane, and nitrous
oxide - have increased to levels unprecedented in the last 800,000 years. Carbon dioxide
concentrations have increased by 40% since pre-industrial times, primarily from fossil
fuel emissions, and secondarily from net land use change emissions. As for global mean
surface temperature, each of the last three decades has been successively warmer at
the Earth's surface than any preceding decade since 1850, and models show that we are
on our way to 3 and 4 degrees warming by 2100 with no additional mitigation efforts. As
stated in the World Bank report Turn Down the Heat, Why a 4 Degree world must be
avoided, emissions must reduce by 50% from 1990 levels by 2050 to limit warming to 2
degrees.
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Climate finance is necessary to combat this climate change challenge. We know that,
left unchecked, climate change threatens the health, homes, and livelihoods of millions
of people around the globe, with the poorest and most vulnerable hit the hardest.
Developing countries are particularly vulnerable to climate change and are already
suffering from severe flooding, longer droughts, crop damage and biodiversity loss.
Addressing the causes and impacts of climate change, and planning for a resilient future,
while maintaining development priorities, all requires additional financial resources.
Climate finance is therefore vitally important to solving the global climate change
challenge.
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While there is no internationally agreed definition at present for climate finance, it is

generally thought to refer to financial resources invested in mitigation and adaptation
measures. How much climate finance is required to achieve low-carbon and climate-
resilient growth, depends on the mitigation and adaptation activities desired. Take a
moment to review the various ranges of additional resources required for addressing
climate change. You can see that mitigation, as well as adaptation interventions, require
significant additional investments compared to business as usual. Investment needs vary
by country and the size, nature and timeline of mitigation and adaptation interventions.
These ranges also illustrate that the overall dollar amount for climate finance needed to
combat climate change will be evolving as the world continues to grapple with how it
plans to respond to the challenge.
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The international community is taking action on climate finance and the investment
challenge under the United Nations Framework Convention on Climate Change (or
UNFCCC). At the 13th Conference of the Parties in Bali in 2007, the Parties identified
finance as a critical issue, pursuing enhanced action with a financial architecture under
the UNFCCC, to which we will turn to now.
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One main aspect of the finance architecture is the commitment to mobilize resources. This
emerged at the 15th Conference of the Parties in Copenhagen in 2009. Industrialized countries
party to the Convention agreed to a goal of mobilizing jointly USD 100 billion dollars a year by
2020 to address the needs of developing countries. At the same time, parties agreed to what is
known as Fast Start Financing' or initial funds approaching USD 30 billion dollars to concrete
actions in developing countries, leading to the USD 100 billion dollar goal.
Please keep in mind that for this course, we will be focusing on the formal mechanisms
established under the United Nations Framework Convention on Climate Change and Bretton
Woods institutions, such as the World Bank or the IFC. There are, and will need to be, many
other financial sources for addressing climate change and, in fact, these sources represent the
vast majority of financing needed to effectively address climate change. For example, the
increased mobilization of private domestic resources, such as lending policies of private banks,
will have to play a key role. The multilateral financing arrangements established under the
UNFCCC are critical leveraging instruments that will work to unleash the much larger amount of
capital required to succeed on this critical issue for all of us.
Click the button to learn more.
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Another main aspect of the finance architecture under the Convention is the delivery of
finance. In order to scale up the provision of long-term financing for developing
countries, Governments at the 16th COP in 2010 in Cancun decided to establish a Green
Climate Fund (or GCF) as an operating entity of the financial mechanism of the
Convention.
Click the button to learn more about the GCF.
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The 17th COP in 2011 in Durban launched the work of the Green Climate Fund, and
decisions were made around the governing instrument for the GCF.
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Another main aspect of the finance architecture under the Convention that evolved in
Durban is the institutional arrangements to provide oversight to the planned, mobilized
and delivered finance. Parties decided to establish a Standing Committee on Finance (or
SC) to assist the Conference of the Parties in exercising its functions in relation to the
financial mechanism of the Convention.
At the 17th COP, the SC launched its work, further defining the roles and functions, as
well as composition and working modalities.
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At the 18th COP in Doha in 2012, the standing committee agreed to establish clarity in
the delivery of climate finance, particularly through preparing an assessment of climate
finance flows starting in 2014 and to organize a forum for climate finance
communication, focusing on adaptation finance in 2014.
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The finance architecture further evolved at the 19th COP in 2013 in Warsaw, where
Parties welcomed the establishment of the independent GCF secretariat and the
selection of the Executive Director of the GCF by the GCF Board. The general message
from Warsaw was to gain clarity on the delivery of climate finance, with a large
emphasis on the need to finalize as soon as possible, the essential requirements to
receive, manage, program and disburse financial resources from the Green Climate Fund.
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The 20th COP in 2014 in Lima, Peru, generated much conversation around climate
finance, including a call for developed countries to enhance the quantitative and
qualitative elements of a pathway for 2016 through 2020. Governments also noted that
urgent support was required for developing countries to build institutional capacities and
enable private sector participation, particularly in Least Developed Countries, or LDCs,
Small Island Developing States, or SIDS, and African countries.
Ultimately, the Lima Call for Climate Action reiterated the global objective of holding
global temperature increase limits below 1.5 or 2 degrees Celsius compared to pre-
industrial levels, and set new levels of ambition for the Intended Nationally Determined
Contributions (or INDCs), which should go beyond current targets. It also requested
Parties continue enhancing enabling environments, policy frameworks, and
methodologies that improve the transparency of climate finance projects.
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Another major topic in Lima was the readiness and preparatory support for the GCF.
Governments welcomed the 10.2 billion dollars in pledges to date and noted that the
GCF will be able to make funding decisions no later than April 2015, or when 50% of all
pledges are received. Once operationalized, the GCF will enhance climate finance
deployment. Governments also urged the GCF to accelerate the start of its Private
Sector Facility.
Click each button to learn more.
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For the first time, the Conference of the Parties decided to convene a biennial High-level
Ministerial Dialogue on Climate Finance, which launched at COP20 in Lima. This
Dialogue provides a unique opportunity for Ministers to engage with each other to reflect
on the current institutional arrangements and the information tools for climate finance
under the UNFCCC, and to further discuss their potential for scaling up funding.
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The next international climate negotiations were the 21st COP in Paris in 2015. This was
a landmark date for reaching agreement on new ways forward in scaling up climate
finance and overall efforts in tackling climate change. Leading up to Paris, Parties to the
Convention worldwide made efforts to prepare for this critical climate negotiations
meeting, where securing a universal climate change agreement in 2015 was discussed.
For the latest information, visit the UNFCCC website, which you can do by clicking the
logo on-screen.
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While there has been great momentum at the international level in climate finance,
nevertheless, the investment challenge is significant. The most recently released Global
Landscape of Climate Finance 2013 report by Climate Policy Initiative (or CPI) finds that global
climate finance flows have plateaued at 359 billion dollars. This is far below the UNFCCC goal to
mobilize a 100 billion dollars a year by 2020, or, in other words, 1 trillion dollars in total. The gap
between actual and needed funds for mitigation and adaptation is large.
Click on the button to see how this amount compares to other global expenses.
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The magnitude of the climate finance investment challenge may appear daunting at first. But, it
is dwarfed when compared to other global expenses, like fossil fuel subsidies. In 2012, national
governments poured 544 billion dollars into fossil-fuel subsidies. These subsidies are used by
governments to keep the price of fossil energy artificially low. By removing subsidies for fossil
energy, governments can create favorable conditions for alternative energy, and at the same
time free-up resources for climate finance. Also, according to the IPCC, reduction of subsidies
for GHG-related activities in various sectors can achieve emission reductions as well.
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Lets take a moment to reflect on your own experience with climate finance. How can
climate finance help to advance low-carbon and climate-resilient growth in your
country?
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More and more countries are integrating low-carbon and climate-resilient growth into
sustainable development plans and investment decisions. With support from developed
countries, development institutions, the private sector and civil society, many
developing countries have begun to integrate climate change considerations into
national development plans, focusing on different priorities according to their national
circumstances and capacities, as well as international support.
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Countries require diverse climate finance investments to carry forth such climate
change considerations in their national development plans. Resources are required to
build national capacities, cover costs and risks, help enable national climate-friendly
investing and catalyze more climate finance in order to transition to low-carbon and
climate-resilient growth, as depicted in the framework displayed.
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With climate finance support available, countries can pursue any combination of
national-level interventions that support low-carbon and climate-resilient growth. Take
a moment to read and consider this list. After reviewing, we see the range of
interventions that are made possible by climate finance, which can help address climate
change and shift countries toward a low-carbon and climate-resilient growth pathway.
The next challenge is how to mobilize climate finance investments, particularly in
developing countries, to make these types of interventions possible.
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All of these previous financing arrangements under the UNFCCC culminated in the
recent, precedent-breaking Paris Climate Agreement.
The twenty-first Conference of Parties (or COP21), held in December 2015, resulted in
186 countries agreeing to address climate change and set the foundation for the
necessary transition of global economy towards a low-carbon pathway. As part of the
Paris process, more than 180 countries submitted their pledges - the Nationally
Determined Contributions, or NDCs - laying out the actions they will take to reduce
emissions and increase resilience to climate change impacts. Investment needs
embedded in the NDCs amount to more than $1 trillion per year over the next 15 years.
Private sector, large industries, and financial institutions pledged to decrease their
carbon foot print and make investments in clean energy and energy efficiency.
Implementation of the Paris Agreement will unlock further investment flows for funding
initiatives, which we broadly call climate finance. Click each button to learn more about
climate finance and the Paris Agreement.
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There are legitimate concerns that taking actions on climate change might compromise
other development priorities, particularly those agreed to under Agenda 2030 and its
Sustainable Development Goals (or SDGs). It will be critical for climate financing to be
complementary and supportive of the full suite of SDG priorities and the UN-based
Financing for Development multilateral process.
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The 22nd Session of the Conference of Parties to the United Nations Framework Convention on
Climate Change (COP22) was held in Marrakech, November 7 to 18, 2016.
COP22 took over the reins from COP21 during which important progress was made, and
was called the COP of action. It focused on various action items required for achieving the
priorities of The Paris Agreement, especially related to adaptation, transparency, technology
transfer, mitigation, capacity building, and loss and damages.
The most important decisions related to climate finance comprise the re-commitment of
developed countries to the $100 billion mobilization goal. A Capacity-Building Initiative for
Transparency was also launched, which will look to help developing countries develop their
national inventory and reporting systems. The aim is to share information on whether current
NDCs are on track and the degree to which countries are able to ratchet up their GHG reduction
aspirations. The fund will be managed by the Global Environment Facility with more than $50
million already in the fund. The first funding recipients are Costa Rica, South Africa, and Kenya.
Click the buttons to learn more.
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According to common practitioner use, climate finance can usually be used to refer to
different investments. We will now review a typology of investments that climate
finance is used to cover.
Click each button to learn more.
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The incremental cost is the present value of the extra capital and operating costs
associated with a mitigation or adaptation measure over its lifetime; for example, the
present value of the capital and operating costs of a solar power plant less the present
value of the capital and operating costs of the natural gas unit displaced. Climate
finance is provided to incentivize the shift to mitigation or adaptation technologies by
compensating for the increase in cost associated with these options. Incremental costs
often make the difference in the final investment decision, influencing where investors
decide to put their money, and are generally funded by public climate finance resources.
Click the button to view a graph displaying the annual investment flows for mitigation
activities over the next two decades.
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This graph shows the change in annual investment flows for mitigation activities from
the average baseline level over the next two decades. What is interesting here is that
such investment changes based on model studies and model comparisons reflect a
significant shift in investment behavior - increasing resources dedicated to low-carbon
technologies, and decreasing investment in the two high emitting technologies
represented: fossil fuel power plants without carbon capture and storage, and
extraction of fossil fuels. This underscores that investment needs are evolving in the
direction of addressing climate change.
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The incremental investment is the extra capital cost required to implement a mitigation
or adaptation measure; for example, the investment in wind turbines less the
investment that would have been required for the coal generating unit displaced.
Incremental investment is generally covered by private sources of funding.
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Climate finance also helps cover the costs to remove barriers - both domestic and
foreign - to technology introduction and create an enabling environment that promotes
low carbon and climate-resilient development plans.
Click each of the highlighted icons to learn more about the types of potential barriers
and then click on the button for additional considerations.
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To help manage delivery and deploy climate finance to cover the types of costs just
mentioned, parties to the UNFCCC Convention have established four special funds:
Special Climate Change Fund (or SCCF), the Least Developed Countries Fund (or LDCF) -
both managed by the Global Environment Facility (or GEF) - the Green Climate Fund (or
GCF) under the Convention, and the Adaptation Fund (or AF) under the Kyoto Protocol.
These special funds help developing countries in addressing the climate change
challenge. The UNFCCC Finance portal provides updated information on these funds.
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Outside of the UNFCCC, a number of other bilateral and multilateral funds were created
in the past years. The World Bank has also established or housed a number of funds and
facilities that are currently playing a major role in climate finance.
Click each logo to learn more.
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A concrete example of climate finance helping countries transition to low-carbon and

climate-resilient growth, is funding from the Clean Technology Fund (or CTF) which is
supporting Colombia's implementation of abatement measures in two key sectors --
urban transport and energy efficiency. Both sectors are identified as ready for scaling-up
of investment, through use of CTF resources, and as exhibiting high potential for
transformation change in terms of shifting investment patterns onto a lower carbon
path. Through the specific interventions in the targeted three consuming sectors
(industrial, commercial and residential), it is estimated that the CTF Efficiency Program
could save 4.9 Mt CO2e over a 20-year period, with a total program cost of US$147.2
million.
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In summary, you have seen how climate finance is in critical need, in order to help
countries address the climate change. The finance architecture under the UNFCCC
Convention has evolved to encompass mobilization, delivery and oversight of climate
finance to developing countries now and for the future. While the magnitude of the
investment challenge seems large, if mobilized, climate finance makes it possible for
countries to implement interventions for low-carbon and climate-resilient growth. In the
next lesson, you will become more familiar with the current landscape of climate
finance and what instruments are critical to mobilizing more climate finance to fill the
resource gap.
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You have reached the end of Lesson 1. Displayed are some links that you may visit for
additional information.
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World Bank Climate Finance - Module 1a

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World Bank Climate Finance - Module 1a

Transféré par

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Climate Finance: Innovative Approaches In

Supporting Climate Action

While there is no internationally agreed definition at present for climate finance, it is

A concrete example of climate finance helping countries transition to low-carbon and

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