Supporting Public and Private Sector Investment in Adaptation

1. Supporting Public and Private Sector Investment in Adaptation UNDP’s experience and EBA

2. Supporting decision-making on… • Whether to invest in adaptation / EBA • Who should invest • How much to invest • What adaptation approach / interventions to invest in • What criteria to use for investment decisions

3. Key areas of UNDP’s work • Catalyzing Adaptation Finance • Costing the gap: Investment and Financial Flows • Capacity building: Training on cost–benefit analysis • Climate Change Public Expenditure Review • EBA: Making the case to government

4. EBA in Mountain Ecosystems • Launched in Cancún 2010, EUR 10 million • Part of German Fast Start Commitment, funded through the BMU’s International Climate Initiative • Implementing partnership of UNEP, UNDP and IUCN building on comparative advantage • Piloting EBA measures in vulnerable communities in Peru, Nepal and Uganda • Maximizing learning and influencing policy and finance

5. Mount Elgon, Uganda Nor-Yauyos Cochas, Peru Panchase region, Nepal

6. EBA in Mountain Ecosystems

7. Catalyzing adaptation finance in developing countries

8. Catalyzing Adaptation Finance Scale of Finance for Adaptation Copenhagen Accord- $100b/year additional finance by 2020 (50% of this for adaptation) “Additional” Funding Needs • $2.129 b (Urgent and Immediate Priorities -NAPAs) • $30-100 b/year for period 2010-2050 (WDR 2010) • $290 b/year (Parry et all 2009) • $326 - $355 b/year for financing adaptation options on natural ecosystems) (Source: Berry 2007) Mainly infrastructure Estimates are likely an underestimate! • Present Level of Assistance • Approx. USD $140-175b & $70-100 b/year for 2010-2050 (mainly for mitigation) • Vertical Funds (for adaptation; LDCF/SCCF/AF): less than $1.0b to-date cumulatively

9. Catalyzing Adaptation Finance UNDP-GEF Services to Catalyze Adaptation Finance Enhance the capacity of policy makers to identify appropriate mix of public instruments including public finance to catalyze larger private investments Create an enabling environment including national/sub-national/ sectoral policy frameworks, domestic technical expertize, financing channels, and administrative procedures Attract innovative finance to provide additional financial incentives • (I) Assist Governments (e.g. through national adaptation plans) to identify priorities from perspective of: • preserving existing infrastructure, businesses and livelihoods; • new business opportunities • no regret options (II) to identify barriers to priority investments (III) identify risks generated by these barriers that prevent the requisite investment (IV) what are the de-risking instruments (V) What are source of finance to support de-risking strategy In support of inclusive and green growth, reduction of inequalities via Green, Low Emission Climate Resilient Development

10. Generating Private Sector Investment

11. Private sector increasingly important • The main drivers of private sector investment will be: • Preserving existing infrastructure, businesses and livelihoods (E.g. SMEs currently engaged in rural agri-businesses, climate resilient infrastructure) • Developing new businesses (E.g. business diversification such new microfinance/insurance products, off-farm employment in new markets, mobile phone operators and climate information dissemination) • No-regret investments (adaptation is an ancillary benefit) (E.g. coastal communities develop mangrove belts increase incomes and meet energy needs and protects shorelines from expected coastal hazards (storm surges, etc.)

12. “Bottom-up” quantification of costs- Investment and Financial Flows • 16 countries • Bangladesh, Colombia, Costa Rica, DominicanRepublic, Ecuador, Gambia, Honduras, Liberia, Namibia, Niger, Paraguay, Peru, Togo, Turkmenistan, Uruguay •  39 I&FF assessmentscompletedsince 2008

13. Assessing Investment & Financial flows for Adaptation in the AGRICULTURE Sector UNDP I&FF Methodology Guidebook: Adaptation

14. Adaptation options in the agriculture sector Define adaptation scenario

15. Project I&FF associated with the Adaptation Scenario Adding costs to adaptation scenario Derive I&FF for adaptation scenario

16. Summarizing incremental investments Estimate changes in annual I&FF needed to implement adaptation [

17. Key sectors identified for I&FF assessments

18. Examples from Costa Rica Total cumulative sum of investments (2010-2030) in biodiversity sector, by investment type Annual incremental cost of investments (2010-2030) for biodiversity & water sectors Water Biodiversity Adaptation scenario Baseline Difference

19. Takeaways: View I&FF Results In Context • The I&FF assessments are not a mere costing exercise, but an analysis of the whole financial landscape of a sector • All countries used same I&FF methodology, but decided individually what sectors to select & what measures to analyze within each sector  scope (& discount rate) has impact on the results • Results comparable with those of World Bank- Economics of Adaptation to Climate Change & UNFCCC - National Economic, Environment & Development Study (NEEDS)

20. Takeaways: sectoral considerations • Incremental costs may seem large, but must be considered within context of planned baseline expenditures, e.g. in Peru, baseline for agriculture was US$5,435 million, while adaptation scenario was US$ 5,759 million  incremental cost US$324 million (↑ 6%) • Often results show I&FF shifts are necessary, e.g. from one technology to another, one subsector to another, while additional incremental investments are required • Savings from implementing measures possible: often in energy mitigation due to increased energy efficiency • low-hanging fruit for policy makers? • what policy/ incentive mix would encourage uptake of these mitigation measures?

21. IFF Results: Headline numbers in EAB countries • Country-level baseline and reference scenario costs for sectoral adaptation through to 2030 • Peru: ecosystem management costs for agriculture in San Martín: US$ 65.8 million, and Junín: US$ 75.4 million • Ecosystem-based integrated water resource management US$ 638.1 million • Nepal: capacity building process • National issues papers – Glacial Lake Outburst Flooding

22. Training on Cost–benefit Analysis • "Assessing Costs and Benefits of Adaptation: Methods and Data” • 2-year Capacity Building Programme on the Economics of Climate Change Adaptation • Bangladesh, Cambodia, Lao PDR, Indonesia, Malaysia, Maldives, Mongolia, Nepal, Philippines, Sri Lanka, Thailand, and Vietnam • Water and agriculture adaptation projects used as case studies for the application of cost-benefit analysis • Mentors assigned to provide technical support to country teams on data collection, project and sectoral evaluations

23. Nepal Case Studies • Water project selected as case study: Kalleritar Irrigation System, funded by Asian Development Bank (during rehabilitation stage) and led by Government of Nepal • Agriculture project: Cost Benefit analysis of Paddy production in the Community Managed Irrigated Agriculture Sector Project- DhadingDistrict • The team aims to undertake a nation-wide (250 -300 observations) primary data collection for agriculture sectoral analysis • The team will conduct secondary water collection in the KhaniKhola watershed for the water sector analysis.

24. Guide Questions For Case Studies • What project are you going to study for the CBA? What is the geographic scope of the project? • What actions on the ground are involved in this project? What alternative actions could be taken that would address these problems at this site, including no action at all?   • List (but do not quantify) the costs of each action and the benefits of each action.   • How will you quantify the amount and timing of each cost and benefit?      • Quantify the individual cost and benefit for each action each year.

25. Climate change public expenditure review

26. CPEIR Methodology • Cross government Steering group led by Finance and Planning Ministries • Public Expenditure Reviews (of World Bank) • Review of policies and institutions • Quantity and quality of climate expenditure: • Review whole budget • Expert assessment of climate “relevance” • Action plans for implementation • Sectoral focus: Local government (Bangladesh, Nepal), Transport (Cambodia and Samoa), Irrigation (Thailand)

27. Policy and Institutions • Link Budget to climate policy: so climate part of budget framework and performance measures • Large development projects made climate resilient • Local government key channel for climate finance • Disaster Risk institutions better linked to climate • Challenges: positive and negative expenditure, perverse incentives • Challenges: private sector expenditure

28. EBA in Mountain Ecosystems

30. Making the case for EBA What do we want to do? How can we do this? Assess costs and benefits of EBA options in key sectors in mountain regions (including evidence from sites) Produce policy papers that guide strategies and resource allocation in sectors Make the case to government through steering committee Develop and complete a Policy and Financing Framework for EBA scale-up beyond mountain regions We want to make the case to government to: • use EBA approaches as part of the suite of options to manage climate risk effectively in mountain regions • enhance enabling environments for scaling-up EBA more broadly as part of climate risk management strategies

31. Analysis of Needs and Opportunities in Peru EBA Project • There is a need for specific tools to help government adapt existing policies and finance mechanisms to incorporate ecosystem-based approaches to climate change adaptation and risk management • This applies particularly to public investment, where there are opportunities to feed into current processes (PACC, IPAC, Green Investment) to adjust for additional demands of addressing climate variability • In this context there is a need to broaden existing typologies of public investment to incorporate EBA-type interventions - including guidelines, justification for them, and evaluation criteria for proposed interventions • Examples of interventions are EBA approaches to water resource management in high altitude pastures, or managing water levels in glacial lakes at risk of flooding • There is also a need to explore how ongoing operating costs of EBA can be financed (in addition to capital investment)

32. Analysis of Needs and Opportunities contd • Detailed costing of all potential EBA work / quantification of an EBA finance "gap" would not be likely to be used by government. • What is particularly needed is quantification of benefits in relation to costs so that the potential rate of return on state investment can be calculated. • Comparative cost benefit analyses of nature-based (green) vs engineered (grey) options for addressing vulnerabilities in mountain ecosystems could be very useful, where feasible. • Where an engineered alternative does not exist, establishing unit costs / cost coefficients is still useful, as well as analysing benefits. • Benefits analysed should include the full range, with an emphasis on socio-economic benefits to people that can be reflected in market values, and that tie in with rural development objectives. • New data and evidence generated in the pilot site in Nor-Yauyos Cochas Reserve, incorporating local knowledge, could be powerful in feeding into this analysis, along with data from other cases. • Selected private sector role-players (e.g. hydroelectric, mining) may also be able to use the tools we develop to guide corporate social investment.

33. Potential Focus for Component 4 in Peru • Develop a toolkit together with and for use by the Peruvian Ministry of Economy and Finance, providing a typology and guidelines for public investment in EBA • Identify several investment types for EBA to vulnerabilities in mountain ecosystems  • For each type, develop a set of products: • Technical guidelines on intervention (and alternative where relevant) • Case study from EBA Component 3 / other work in Peru / elsewhere • Cost-benefit analysis (and alternative where relevant) • Presentation on outcomes for key role-players • Training module with material and presentations