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

1. Combining public financing and market-based instruments to improve climate resilience Best practices in Latin American cities Marcela Tarazona, Senior Consultant, Oxford Policy Management 15 May 2012

2. Outline • Introduction • An integrated approach to urban climate resilient interventions • Typology of funding sources available to cities • National sources • Local sources • Private sector • International finance • Recommendations

3. Introduction • Strategic importance of cities: • Occupy 1.5 per cent of the world’s area • Produce half of the worlds’ GDP • 75% of LAC’s population lives in cities • Cities and climate change: • More than 80% of the world’s GHG emissions • 80% of global adaptation costs will be urban • Cities are not receiving sufficient access to climate finance

4. Outline • Introduction • An integrated approach to urban climate resilient interventions • Typology of funding sources available to cities • National sources • Local sources • Private sector • International finance • Recommendations

5. Integrated 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 activities • Improve access to national sector programmes • Expand local fiscal resources based on prioritized sector investments within urban development plans • Increase private investment and PPPs • Add 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

6. Outline • Introduction • An integrated approach to urban climate resilient interventions • Typology of funding sources available to cities • National sources • Local sources • Private sector • International finance • Recommendations

7. Typology of funding sources available to cities • Sources of climate funding for cities can be divided in four broad categories: • National sources • Local sources • Private sector • International finance

8. Sources of national finance • Improve access to national sector programmes • Access 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

9. Expand local fiscal resources • Examples of local economic instruments and policies in key sectors

10. Increase private investment and PPPs • Insurance: • 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%)

11. International finance: main climate funds that benefit urban climate resilient investments

12. International 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 components • Long implementation period • Difficulty to comply to monitoring reporting and verification (MRV) • Need of co-financing • Difficulties in project development

13. International finance (cont.) • Multilateral and Bilateral Development Banks • IADB • Technical cooperation and lending in key urban sectors (transport, WSS, energy, housing) • New Emerging and Sustainable Cities Initiative (ESCI): • Environment / climate change • Urban development • Fiscal sustainability • World Bank • Technical 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) • CAF • Through 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.

14. Outline • Introduction • An integrated approach to urban climate resilient interventions • Typology of funding sources available to cities • National sources • Local sources • Private sector • International finance • Recommendations

15. Recommendations • Integrated approach to urban climate resilient interventions • Climate Change Action Plans • Outline general climate resilient development goals • Complemented with other sector planning documents • Combine sources • Use Municipal Plans as a strategic and operational instrument to integrate investments and diverse sources of finance

16. Recommendations • 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  access to climate finance • Assessment, measurement, reporting, and verification • Regulation, plans, and policies • Fiscal incentives • 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 NAMAS