Briefing on Climate Investment Funds

1. Briefing on Climate Investment Funds Bangkok April 1, 2008 Warren Evans Director, Environment Sustainable Development Network The World Bank Group

2. Outline • Progress since Gleneagles (CEIF) • Towards Strategic Framework on Climate Change and Development (SFCCD) • Proposed Climate Investment Funds (CIF) • Scaling up Carbon Finance

3. Meeting Financing Needs – Progress since Gleneagles Update on the Clean Energy Investment Framework (CEIF)

4. Reporting on CEIF • Progress Report to October 2007 Annual Meeting provided details on progress on Action Plan for: • Energy for growth, with a particular emphasis on access to energy in Sub-Saharan Africa; • Transition to a low-carbon development trajectory; and • Adaptation to the impacts of climate change. Report also outlined an approach to scaling up actions on climate change and provides a review of options to further reduce the financial barriers to support low-carbon and adaptive growth in developing countries. Sustainable Development @ The World Bank

5. WBG Key Progress Since Gleneagles • Access and Low Carbon Energy (1) • Cumulative energy commitments of over US$11 billion for FY06–FY08 to date are 57% higher than the energy lending in FY03–05. • Energy financing to IDA countries also increased significantly, from annual average of US$0.9 billion between FY03 and FY05 to an annual average of US$1.8 billion between FY06 and FY07. But energy access remains a policy and financing challenge in all regions, especially in SSA. • Share of support for low-carbon energy projects up from 28% in FY03–05 to 40% since Gleneagles. • GEF and Carbon Finance contributed US$546 million, or 13 percent. Sustainable Development @ The World Bank

6. WBG Key Progress Since Gleneagles • Access and Low Carbon Energy (2) • RE and EE for the period FY05 to H1FY09 was US$2.3 billion, exceeding Bonn commitment 1.5 years ahead of schedule • CEIF low-carbon work extended to other sectors, such as transport and urban sectors, showing good potential. • Two new Carbon Facilities—CPF and FCPF approved in September 2007 • Pilot program to begin measuring GHG emissions of the WBG lending portfolio is underway. Sustainable Development @ The World Bank

7. Adaptation – IDA and Climate Changeresults and related work • CEIF argued for the need for a shift in approach to adaptation from a largely stand alone, project by project approach to one where the management of climate risk, current and future, was regarded as an essential part of development planning. • IDA and Climate Change report (2007) shows that the poorest countries are most vulnerable to climate change impacts and that such countries need to consider immediate interventions that will increase their resilience to climate change. Sustainable Development @ The World Bank

8. Adaptation Sustainable Development @ The World Bank

9. Adaptation- Progress since Gleneagles • New analytical tools and guidance for assessing and managing climate risk are necessary. • Resources made available through the GEF have been critical in promoting assessments, capacity building and initial project by project action, but fall a long way short of the resources required to support comprehensive adaptation. • Netherlands, UK, WB partnership on a Global Economics of Adaptation study to “understand how to identify and prioritize adaptation measures and to estimate the financial costs of ensuring national development plans are climate resilient”. • JBIC, ADB, WB partnership on Adaptation in major Coastal Cities. Sustainable Development @ The World Bank

10. Key Lesson since Gleneagles-Thinking of climate change differently • Beyond environment—complex and overaching problem • Affects all aspects of societies—economy, technology, trade, equity, ethics, security, relations within and among countries • Financial aspects inceasingly important, both in regard of national budgets and international transfers- and financing needs are enormous and not being met. • Progress on implementing widespread adaptation has been hindered by the lack of sound estimates of the scope of the task and the financial implications. • Requires to run on two legs: • mitigation—to avoid the unmanageable, • adaptation—to manage the unavoidable Sustainable Development @ The World Bank

11. Towards a WBG Strategic Framework on Climate Change and Development (SFCCD) Sustainable Development @ The World Bank

12. Towards a WBG Strategic Framework on Climate Change and Development (SFCCD) • WBG will maintain the momentum for implementing the CEIF action plan and expand its strategic thinking on climate change, in a more comprehensive, cross-sectoral manner and in alignment with the growing needs of developing countries. Sustainable Development @ The World Bank

13. SFCCD Milestones • Requested by Annual Meetings 2007 as an evolution of the Clean Energy investment Framework (CEIF) • Concepts and Issues development, early consultations– through March 2008 • Full-scale Consultations – April-June • Draft Final Paper –July • Web-based consultations, select meetings per demand – August-September • Final paper – Annual Meetings in October 2008 Sustainable Development @ The World Bank

14. SFCCD is about development in the context of climate change • Priority of growth, poverty reduction and MDGs • Importance of meeting energy needs of developing countries • Development imperative of helping to adapt to climate risks • Resource mobilization in addition to the current ODA levels

15. Relation to UNFCCC Negotiations • Neutral to any party position • Helping countries understand the impacts of alternative policies within the UNFCCC • Piloting innovative instruments and approaches that help inform the development of a future regime (e.g. Carbon Finance, IDA15 as a platform for mainstreaming adaptation) • Advocacy and capacity building Sustainable Development @ The World Bank

16. SFCCD Objective To integrate climate change and development challenges, without compromising – and rather enhancing – growth and poverty reduction efforts through: • Country, regional, and global operations • A multi-sectoral, multi-dimensional approach • The use of a strong and balanced results framework • Working with other development partners Sustainable Development @ The World Bank

17. Working With Multiple Partners • UN agencies, UNFCCC Secretariat, GEF • A common UN-system approach to CC • Building blocks: mitigation, adaptation, technology, finance • Other MDBs • Clean Energy Investment Framework • Bi-lateral donors • Initiatives by countries, sub-national (city) governments, private sector, NGOs • Scaling up WBG engagement based on its specific comparative advantages Sustainable Development @ The World Bank

18. SFCCD Pillars • Make effective climate action – both adaptation and mitigation - part of core development efforts • Address the resource gap through existing and innovative instruments for concessional finance • Facilitate the development of innovative market mechanisms • Create enabling environment for and leveraging private sector finance • Accelerate the deployment of existing and development of new climate-friendly technologies • Step-up policy research, knowledge management and capacity building Sustainable Development @ The World Bank

19. Focusing on multiple benefits and business opportunities Mobilizing concessional finance to cover additional cost Dual approach to integrating climate action into development by :

20. WB lending: in sectors with largest potential for adaptation and /or mitigation Numerous opportunities to make a difference; similar situation in IFC and MIGA: GHG Emissions and IBRD/IDA Portfolio, FY07 Sustainable Development @ The World Bank

21. … similar situation with IFC & MIGA portfolios IFC investment by Sector ($ mln), FY07 MIGA Guarantees by Sector ($ mln), FY07

22. Progress to date: Strong replenishment of IDA15 Adaptation Fund under special arrangement with GEF Secretariat CIEF: Increased volume and share of low carbon energy lending, in partnership with GEF IFC leveraged private finance by 1 to 5 Robust increase in Carbon Finance Forest Carbon Partnership Facility Mobilizing Finance to Cover Additional Costs • New initiatives: • WBG+RDBs - Climate Investment Funds (CIF) • Carbon Partnership Facility • MIGA –carbon credit delivery guarantee • IFC- Structured financing packages blending CF with loans and guarantees • WB Treasury - bonds at reduced rates to advance to projects with climate benefits • Climate Risk Insurance productscustomized to different needs Sustainable Development @ The World Bank

23. Addressing the Resource Gap: proposedClimate Investment Funds Sustainable Development @ The World Bank

24. Addressing the Resource Gap: proposed Climate Investment Funds • Scale of action- need to translate lessons from CEIF and longer-term GEF pilot and prototype projects and capacity building, into broader programs which will help transform economies so that the objective of alleviating poverty and fostering growth can be met through new ways of approaching low-carbon growth and enhancing resilience. • In consultation with interested parties, the WBG and Regional Development Banks (RDBs) are joining efforts to establish a portfolio of strategic CIF. • CIF to complement, build upon and enhance the activities of other existing instruments, like the GEF, IDA, International Bank for Reconstruction and Development (IBRD) and the IFC. Sustainable Development @ The World Bank

25. Climate Investment Funds: Principles • Financing needs for climate change are enormous – widespread recognition that all multilateral institutions must work with their clients to address this agenda in support of the Bali Action Plan. • Climate Change is a development issue, and therefore MDBs have an essential role to play. The central role of the GEF and UN agencies in the financial architecture to address climate change is fully recognized. • The CIF aims to fill a critical gap: scaling up investments while transforming development paths of the countries. This will contribute to promoting an international environment supportive of a global agreement to address climate change. Sustainable Development @ The World Bank

26. Building on New Initiatives • UK Environmental Transformation Fund • US Clean Technology Fund • Japan Cool Earth 50 • Strategic Climate Fund • Clean Technology Fund ADB, AfDB, EBRD, IDB and the WBG joined forces to establish a portfolio of Climate Investment Funds Sustainable Development @ The World Bank

27. Where We Are • Current status: • Strong interest from several donors • Support from MDBs • Demand from countries • Agreement with GEF and preliminary discussions with UN agencies and UNFCCC • Ongoing Actions: • Consultations with recipient countries • Expand donor base • Broader and deeper consultations with others (UNFCCC, GEF, UN partners, private sector) • Advance design of funds and financial instruments Sustainable Development @ The World Bank

28. Proposed FundsClean Technology FundStrategic Climate Fund Sustainable Development @ The World Bank

29. The Gap in Mitigation Financing • Absolute financing gap is ~ $100 billion per year • In long-term, could be filled by combination of: • growing market for carbon trading (could reach $100 billion after 2012), and • policy instruments such as carbon taxes • In the interim, concessional financing is critical to catalyze increased flow of commercial capital in this area Sustainable Development @ The World Bank

30. Proposed Clean Technology Fund • Accelerates transformation to low carbon economies • Finances cost-effective mitigation of greenhouse gas emissions • Focus on investments that reduce GHGs at scale or have demonstration impact that will lead to scale • Speed and nimbleness essential, given urgency • Scales-up and replicates lessons of GEF • Focuses on engaging private sector • Complements existing financing • Utilizes the right blend/suite of instruments (concessional loans, grants, guarantees) Sustainable Development @ The World Bank

31. Proposed FundsClean Technology FundStrategic Climate Fund Sustainable Development @ The World Bank

32. Proposed Strategic Climate Fund • Composed of Partnerships for targeted initiatives • Pilot Program for Climate Resilience • Ecosystem Services • Pre-commercial Technologies • Forest Investment Sustainable Development @ The World Bank

33. Pilot Program for Climate Resilience • IDA is strong platform to promote climate-resilient development. The successful IDA-15 replenishment was partly testament to that (+42%) • MDBs have already begun incorporating adaptation concerns into their programs • GEF Voluntary Funds: • Special Climate Change Fund • Least Developed Countries Fund • GEF Trust Fund Strategic Priority on Adaptation • Adaptation Fund (GEF-administered) could reach: • ~ $100-500 million through 2012, can increase to $2 billion per year after 2012. • Bilateral donors providing additional resources ca. $300 million Sustainable Development @ The World Bank

34. Gaps in Adaptation Financing • Financing gap: UNFCCC estimates that in 2030, $28–67 billion/year required to help developing countries adapt • Knowledge gaps are impediments to integrating climate risks into development • Until large-scale funds are operational, interim financing is necessary to proceed with adaptation mainstreaming in development and to build knowledge base Sustainable Development @ The World Bank

35. Proposed Climate Resilience Pilot Program • Pilot and demonstrate ways to mainstream climate risk management and climate resilience into core development planning and budgeting • Pilots will be country-led and build on National Adaptation Programs of Action (NAPAs) • Report lessons learned to the Board of the Adaptation Fund, and share them widely withIDA and similar programs in MDBs and UN • Explore how to support country efforts through international finance, consistent with Paris Declaration on Aid Effectiveness Sustainable Development @ The World Bank

36. Proposed Climate Resilience Pilot Program • Board of Adaptation Fund will be invited to participate in design and governance • Primary decision making at country level • Oversight Committee: developing countries + all recipient countries, donors, the developing country Co-Chair of the Adaptation Fund Board, MDBs, UNDP, UNEP, GEF, civil society • 5-10 pilot countries to receive scaled-up support • Pilot countries will be IDA eligible or SIDS • 3-5 year time frame • Technical assistance ($1-2 million) • Additional financial resources to fund investments (up to $100 million per country) Sustainable Development @ The World Bank

37. Summary: Key Common Features of Climate Investment Funds • Support investments based on country-led strategies, and • Be flexible and efficient to respond to country demand and provide innovative solutions to mobilize private sector • Maximize co-benefits, particularly in relation to poverty reduction and sustainable management of natural resources and ecosystem services • Encourage fast-tracking of early action (both mitigation and adaptation) and market-based solutions to climate change • Utilize skills and capabilities of international financial institutions to raise and deliver concessional climate financing at a significant scale Sustainable Development @ The World Bank

38. CIF Issues and Opportunities • In further developing the proposal for climate investment funds, the MDBs are engaged in extensive consultations with key stakeholders, particularly potential recipient countries and other interested parties and advance the design of funds and financial instruments. • The final proposal will focus on: • Supporting UNFCCC Bali Action Plan and consistency with Paris Declaration • Country ownership- low carbon growth strategies and NAPAs to support national sustainable development • Learning by doing- for example enhancing knowledge base for Adaptation Fund operations through pilots • Inclusive, effective and efficient governance • Optimizing impact Sustainable Development @ The World Bank

39. Scaling up Carbon Finance Sustainable Development @ The World Bank

40. Pioneering Carbon Finance • World Bank’s experience • A global pioneer and catalyst in the carbon market – US$180 million Prototype Carbon Fund (PCF) initiated in 1999, before the Kyoto Protocol became effective • BioCarbon Fund: “LULUCF” (Land use, Land use Change and Forestry) pioneer since 2004, including for “Reducing Emissions from Deforestation and Degradation” (REDD) at the project level • Now managing 10 carbon funds, and over US$2 billion • 16 countries and 66 private sector companies have made contributions to funds Sustainable Development @ The World Bank

41. Scaling up Carbon Finance New! Carbon Partnership Facility (CPF) • Objectives • Target long-term emissions • Scale up • Support strategic, transformational interventions in power sector development, energy efficiency, gas flaring, transport, urban development, etc. • Features • Programs, away from individual projects • Partnership between buyers and sellers • Fostering both demand and supply in uncertain market • Target size: €5 billion over 5 years; first tranche: €350 million Sustainable Development @ The World Bank

42. Scaling up Carbon Finance New! Forest Carbon Partnership Facility (FCPF) • Objectives • Pilot system of positive incentives for post-2012 that includes REDD • Remain neutral to UNFCCC negotiations • Catalyze / leverage private sector investment to enable scaling up: $300 million will not save world’s forests • Features • Balanced governance structure (developing countries, industrialized countries and carbon fund participants have balanced voting rights on Participants Committee) • Voluntary participation • Two mechanisms • $100 million readiness fund for capacity building • $200 million carbon fund for purchase of emission reductions Sustainable Development @ The World Bank

43. Forest Carbon Partnership Facility (FCPF) • Malaysia • Mexico • Nicaragua • Pakistan • Panama • Papua New Guinea • Paraguay • Peru • Philippines • Republic of Congo • Senegal • Sierra Leone • Sudan • Thailand • Uganda • Vanuatu • Argentina • Bolivia • Cameroon • Central African Republic • Colombia • Costa Rica • Dem. Republic of Congo • Ecuador • El Salvador • Gabon • Ghana • Guatemala • Guyana • Indonesia • Kenya • Laos • Liberia • Madagascar 34 Requestsfor Participation/Cooperation Sustainable Development @ The World Bank

44. Thank You Sustainable Development @ The World Bank