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International Center For Environmental Finance.

International Center For Environmental Finance. Series A – Course #1 Sources of Funds for Environmental Projects.

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International Center For Environmental Finance.

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  1. International Center For Environmental Finance. Series A – Course #1 Sources of Funds for Environmental Projects

  2. The United Nations has estimated that the cost of reaching the Millennium Goal of halving the number of people without access to clean water or basic sanitation is an additional $100 billion per year.

  3. Sources of Funds • National Budgets • International Financial Institutions • Donors • Private Capital

  4. National Budgets • In every country, the environment must compete for scarce central government funds with such high priority issues as national defense, food, public health, education, housing and economic development.

  5. International Financial Institutions • The World Bank and all of the regional development banks combined do not have the financial resources to pay for clean water and clean air across the globe.

  6. Donors • Donor countries can only provide a small portion of the funds needed for a clean environment. At present, they furnish about $3 billion a year for water and wastewater. • In addition, the environment must compete for donors’ scarce funds with other issues such as food, public health, housing, and education.

  7. Private Capital • Only private capital can provide the vast amounts of money needed to provide clean water and clean air to the billions of people on this planet. • The world economy is approximately $35 trillion. As such, the $100 billion needed to reach the Millennium Goal represents about 3/10ths of 1%.

  8. How to Access Private Capital

  9. Private Capital Requires • High Returns on High Risks • Low Returns on Low Risks

  10. High Returns on High Risks Environmental Projects Cannot Pay High Returns High Payments For Environmental Projects Mean Fewer Projects Will Get Built

  11. Low Returns on Low Risks Environmental Projects Must Pay Low Returns. Therefore, Environmental Projects Must Be Low Risk

  12. Private Capital Recognizes 2 Types of Risk • Credit Risk • Liquidity Risk

  13. Credit Risk Credit Risk is the Risk that the Investor will not be Repaid It is the Risk of Non-Payment

  14. Liquidity Risk Liquidity Risk is the Risk that the Investor will not be able to Sell his Investment Prior to Maturity An Investment with no Resale Value is Il-liquid

  15. Liquidity • A liquid market is one with a large number of similar investment opportunities • Therefore, to be liquid, environmental finance programs must be as broad-based as possible – nationwide, not regional or local in scope.

  16. Liquidity • A liquid market is permanent. Similar investments must be available every year. • A liquid market cannot depend on the annual acts of a national legislature. To be permanent, an environmental finance program must be self-sustaining.

  17. A permanent, nationwide, self-sustaining finance program – where all projects can be funded – is a system. • Such a system will attract private capital.

  18. Accessing Private Capital • To fund highly needed environmental projects, nations must be able to access the private capital markets.

  19. Accessing Private Capital • The only way for nations to access the private capital market is to create permanent, nationwide, self-sustaining systems for financing environmental projects.

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