Yuqing Ariel Yu Senior policy researcher, Climate and Energy Area

1. Climate finance trends in Asia and the implications of scalability of the Green Climate Fund on access modality Yuqing Ariel Yu Senior policy researcher, Climate and Energy Area Institute for Global Environmental Strategies (IGES) February 17th, 2014

2. Outline • Background knowledge about climate finance • Climate finance trends in Asia • The implications of scalability of the Green Climate Fund on access modality

3. Global climate finance in 2012 Sources Scope, terminology, and data sources Multilateral climate funds $1.4b Adaptation $22b Bilateral climate funds • Definition of climate finance • No globally agreed definition • The Standing Committee on Finance is working on an operational definition (decision-/CP.19) $0.2b Development finance institutes $359b $122b Mitigation (including REDD+) $357b Government budgets $12b Private sector $224b Source: CPI, 2013

4. Principles and criteria of public climate finance • Fund mobilization • Equity: common but differentiated responsibilities and respective capabilities (UNFCCC, Art. 2) • Who should pay the cost? The polluter pays • Define a legal obligation for compensatory finance, distinctly different from aid flows • Adequacy and predictability in the flow of funds and the importance of appropriate burden sharing among the developed country Parties (UNFCCC, Art. 4.3) • Funding must be adequate, predictable, sustainable as well as new and additional (Bali Action Plan, Art. 1(e)(i)) • Scaled-up, new and additional, predictable and adequate funding shall be provided to developing country Parties (the Cancun Agreements, Para. 97) • Fund governance • Transparent and accountable • Equitably represented • Traditional ODA gives donor countries a bigger voice in funding decisions • Climate finance is compensatory in nature and should be governed based equitable representation of developed and developing Parties • Fund disbursement • National ownership • Meets sustainable development needs in developing countries

5. Institutional arrangements under UNFCCC and climate finance commitments • Institutional arrangements • The Standing Committee on Climate Finance • The Green Climate Fund • The Global Environment Facility (climate focal area) • The Adaption Fund (Kyoto Protocol) • Climate finance commitments • The Fast-start Finance (FSF): Developed countries collectively provide approximately USD 30 billion during 2010 to 2012 (The Cancun Agreements). • The long-term finance: Developed countries collectively provide USD 100 billion annually by 2020 (The Cancun Agreements). • Provide resources of at least the average annual level of the FSF period for 2013-2015 (The Doha Gateway)

6. Climate finance trends in Asia

7. Scope, terminology, and data sources • Scope of this study • Dedicated public climate finance (UNFCCC climate funds, multilateral initiatives outside the UNFCCC, bilateral ODA) • Other official flows (OOFs) excluded • Time scale: 2006-2012 • Countries: East, South, and East South Asian countries • 8 countries are least developed countries (LDCs) • 10 countries are non-LDCs • Data sources: • IGES FSF database and Climate Funds Update

8. Asia received a total of USD10,754.4 million in climate finance (2006-2012) Non-LDCs: China India Indonesia Malaysia Mongolia Pakistan Philippines Sri Lanka Thailand Vietnam LDCs: Afghanistan Bangladesh Bhutan Cambodia Lao PDR Maldives Myanmar Nepal • Climate finance according to thematic activities

9. The FSF period saw a ten-fold increase in climate finance to approximately USD3,500 million annually • Yearly distribution of climate finance

10. Climate finance was not evenly distributed among the recipient countries • Country distribution of climate finance

11. Asia received 68% of funding in the form of concessional loans Non-LDCs: China India Indonesia Malaysia Mongolia Pakistan Philippines Sri Lanka Thailand Vietnam • Financial instruments LDCs: Afghanistan Bangladesh Bhutan Cambodia Lao PDR Maldives Myanmar Nepal

12. Mitigation represented the largest share of funding during both periods and accounted for almost 70% of the money received in the respective periods • Comparisons of themes

13. The composition of financial instruments changed dramatically before and during the FSF period • Comparisons of financial instruments

14. The order of recipient countries also changed • Comparisons of recipient countries

15. The decline of the role of UNFCCC funding and the rise of multilateral and bilateral initiatives outside the UNFCCC was a notable feature during the FSF period • Comparisons of funding sources

16. Climate finance profile of Philippines Sources: IGES et al. 2013; CFU, 2014 Sources: IGES et al. 2013; CFU, 2014 • Thailand has a strong focus on mitigation. • Thailand is the largest recipient country of CIFs’ funding in Asia. • Thailand saw a 12-fold increase in climate finance during the FSF period.

17. Implications • Different nature of UNFCCC funding and bilateral funding • UNFCCC funding: GHG emissions level and reduction potential • Bilateral funding: existing programs and relationships • Disbursement rate was low in Asia • Who have supported for preparation have not further committed to financing implementation • The dichotomy of readiness support and implementation support calls for further coherence and coordination at the UNFCCC level • Urgent need for a working definition of climate finance • Defining mobilized private finance in the context of long term finance

18. The Green Climate Fund (GCF)

19. Multilateral and bilateral climate funds

20. The Green Climate Fund • The GCF is expected to deliver the lion’s share of the USD 100 billion annual goal. • There is no commensurate increase of knowledge and experience with regard to delivering the scaled-up finance in a way that can reflect the needs and challenges of developing countries. • What are the implications of the scalability of the GCF? • The GCF has to employ a devolved managerial structure for fund disbursement in order to live up to its envisaged scale. • The GCF needs enhanced access mode partly because it has to meet the mandate of operating in a cost-effective way whilst initiating operation soonest possible.

21. Proper fund management requires people and the location of staff members matters Source: GCF, 2013a *GCF (2013a) does not specify whether the numbers in the table counts the size of GEF climate focal area only or the size of GEF as a whole that includes other focal areas as well. However, the context of the paper implies that the numbers include GEF climate focal area only, because the paper has no mention of GEF other focal areas. • The difference of staffing density is not necessarily an indication of inefficiency or a suggestion of comparison.

22. The GCF needs to operate in a devolved way and outsource certain management functions to accredited intermediaries

23. The enhanced direct access modality • The experience of the Adaptation Fund shows that the administrative fee for national entities is significantly less than the fees quoted by multilateral entities. • The administration of funding should be delegated as much to national financial entities in developing countries to ensure the GCF to operate in a cost-effective and streamlined way. • To operate as soon as possible, the GCF could start with an enhanced access mode by devolving funding decisions, at least at the outset, to the existing climate funds under the UNFCCC (i.e., the GEF and the AF).

24. Asia has only two NIEs accredited by the Adaptation Fund • All multilateral climate finance to Asia was channelled through multilateral organizations and Asian countries have had zero experience of directly accessing multilateral climate finance. • Asia has only two NIEs accredited—the National Bank for Agriculture and Rural Development in India and the Ministry of Planning and International Cooperation in Jordan. • Latin America and Africa have 7 and 6 NIEs accredited by the AF

25. Barriers faced by Asian countries in accrediting NIEs • Direct access is not an obligation or perquisite to obtain funding from multilateral climate funds, it offers desirable opportunities to improve financial integrity and management and consequently better attract resources from other donor agencies. • First, the countries that have a strong need for adaptation in general have had very limited experience of handling international funding and are lack of proved record of financial integrity. • Second, the long-standing relationship with multilateral implementing entities (MIEs) may result in a path dependency that precludes the role of NIEs. • Finally, developing countries have difficulties in identifying the best suited institution as the NIE.

26. National climate funds are NFEs that might be allowed for enhanced direct access by the GCF and can offer many opportunities for Asian countries.

27. Policy recommendations • The GCF has to employ a devolved managerial structure to live up to its envisaged scale. The GCF should allow accredited institutions to make funding decisions and outsource certain management functions to developing countries for the sake of cost effectiveness and country ownership. The GCF should allow for enhanced direct access to meet the mandates of scalability, urgent operation, and cost effectiveness stipulated in its Governing Instrument. • The GCF should avoid making decisions at the project level and devolve certain funding decisions to the existing institutional arrangements under the UNFCCC for the purpose of urgent operation. For the interim period that the GCF acquires its in-house capacity and rationalizes its financial mechanism, it should avoid getting involved in project- and program-level decision making. Rather, it can accredit the GEF and the AF as the funding entities for mitigation and adaptation activities, respectively; and channel funding according to investment plans of the GEF and the AF. • The GCF should include capacity building of NFEs as one of the priorities in its readiness program. The GCF should support building capacity of NFEs at the outset, in particular by providing sustained funding in its readiness program.

28. Thank you for your attention yu@iges.or.jp