Climate Funds Update highlights: May 2017

The biggest news in the last few weeks has been the US’s withdrawal from the Paris Agreement. One impact of this withdrawal is uncertainty over the delivery of the remaining $2 billion from the US’s $3 billion pledge to the Green Climate Fund (GCF).  In response, however, many US state governors, mayors, university presidents, and businesses have reaffirmed their commitment to climate action. Some are in talks to become official parties to the Paris Agreement and submit climate pledges under the Non-State Actor Zone for Climate Action (NAZCA) mechanism for sub-national entities, in a bid to match and continue the commitments that the US government does not fulfil. The outcome of these talks could be a game changer for increasing climate support across the US and mobilising greater private sector involvement.

The Bonn climate talks in May also reaffirmed the need for both public and private sector involvement in achieving global target. Key discussions took place in Bonn around the ‘rulebook’ for the implementation of the Paris Agreement, which must be finalised at COP24 in 2018, the Facilitative Dialogue and Global Stock Take processes for monitoring and reporting of climate action, and contention over the Adaptation Fund (AF).

In the wake of these and other key developments in climate action, there have been some interesting movements in climate financing. We have undertaken our May 2017 round of updates to the Climate Funds Update database, which monitors the donations to, and disbursements of financing by the key climate funds. This data can be found on the Climate Funds Update website. In this blog, we’ll summarise the main changes since the last update in November 2016.

The biggest pledges and deposits since November 2016=> money coming from donors to the funds

Only modest additional pledges have been made to climate funds since November 2016. From the funds reported in CFU, the largest increases in pledged amounts have been to the Adaptation Fund (of approximately $70 million) and the Pilot Program for Climate Resilience (PPCR) (of approximately $35 million).

The Adaptation Fund received new contributions of $2.9 million from the Brussels Capital Region, $6.7 million from Flanders (Belgium) and $58.9 million from Germany (bringing their total contributions to the AF to $4.9 million, $7.8 million and $223.9 million, respectively). The PPCR received an increased funding pledge from the United Kingdom of $37 million (bringing the UK’s total contribution to the PPCR to $525.9 million).

Also of note, the Green Climate Fund (GCF) has received a number of small pledges since November 2016: $0.5 million from Cyprus, $4.8 million from Flanders and $10.9 million from Wallonia, two regional governments in Belgium, and $1.3 million from the city of Paris, the first municipal government to make a pledge to the GCF.

Leading project approvals since November 2016=> money going out of the funds

The Green Climate Fund (GCF) has approved the largest amount of new project funding since our last update in November 2016, committing $1,046 across 16 projects. Six of these projects target climate adaptation and six target mitigation, while four cut across both objectives. The largest new project is providing $250 million in equity and $15 million in grant funding towards ‘GEEREF NeXt’, the new phase of the Global Energy Efficiency and Renewable Energy Fund. The GEEREF is a fund of funds that seeks to act as an anchor investor for renewable energy and energy efficiency projects in developing countries, drawing in private investors by allowing them to diversify their risk across multiple projects and technologies. Three further new GCF projects each have over $100 million in approved financing each: the ‘Simiyu Climate Resilient Development Programme’ in Tanzania, ‘Catalyzing Private Investment in Sustainable Energy’ in Argentina, and the ‘Renewable Energy Financing Framework ‘project in Egypt. In the latter two projects, funding primarily consists of concessional loans. The GCF is making use of a greater diversity of financial instruments than has been traditional for climate funds, offering equity and guarantees in addition to grants and concessional loans in an attempt to better address project-specific investment barriers (see infographic 3 on ODI’s 10 things to know about climate finance in 2016).

The Adaptation Fund (AF) has approved $68 million across 35 projects since November 2016. Ten of these projects, averaging $7 million in funding, actively seek to reduce vulnerability and build resilience. The remaining approvals are for $10,000 to $50,000 technical assistance grants under the AF’s Readiness Programme for Climate Finance, which aims to build the capacity of National Implementing Entities (NIEs) to address environmental, social and gender-related risk management (see Adaptation Fund, 2016). The AF has recently approved projects, such as the ‘Integrated approach to physical adaptation and community resilience in Antigua and Barbuda’s northwest McKinnon’s watershed’, which include provisions directed at improving financial and technical access for micro-, small- and medium enterprises (MSMEs). MSMEs are an underserved group with a large potential to undertake adaptation activities; the AF, along with the GCF and a handful of other climate funds are leading the way in increasing the targeting of adaptation activities through this sector.

Since November 2016, funds have approved $389 million for adaptation projects (a 9% cumulative increase), $657 million for mitigation projects (7% increase), $163 million for REDD+ projects (7% increase), and $274 million for multiple foci projects (16% increase) (Fig.1).

Figure 1: Thematic distribution of new project funding since November 2016 (USD millions)

2017 Blog Fig 1

In geographic terms, the Sub-Saharan Africa and the Latin America and the Caribbean regions have attracted the largest amounts of new multilateral climate finance over the last 6 months (Fig. 2).

Figure 2: Geographic distribution of new project funding since November 2016 (USD millions)

2017 Blog Fig 2

The coordination of climate finance in India

Vyoma Jha, Centre for Policy Research

The Indian government recently announced the enhancement of solar energy targets under the National Solar Mission to 100 GW by 2019 as compared to the initial aim of 22 GW by 2022, targeting nearly US$100 billion in renewable energy investments over the next five years. It also established a National Adaptation Fund with an initial funding of Rs.100 crore (approximately US$16 million) as budgetary support towards climate change. While this flurry of activity indicates a commitment on part of the government towards low-carbon and climate resilient development, it also establishes a strong case for identifying the existing and future sources of climate finance to support such activities.

Increasing role of ‘climate’ in mainstream policy and investment decisions

Well-defined policies in the solar energy and energy efficiency markets, triggered by national climate policy, have spurred climate related finance through a variety of domestic and international, both public and private, sources. Most significantly, there has been an emergence of major public and private sector banks and development finance institutions in supporting climate mitigation or adaptation related efforts, lending itself to a ‘mainstreaming’ of the climate agenda within national financial actors. However, there still remains a need to engage these diverse sub-national and financial actors in national agenda setting around accessing international funds.

With no formal coordinating mechanism around climate finance in India, multiple processes for financing thrive within the country that can be broadly categorized into two distinct arrangements – one, mobilizing funding labelled climate finance, and two, mainstreaming public finance that has climate benefits. Our latest study on ‘The coordination of climate finance in India’ suggests the national climate finance landscape is highly fragmented with a wealth of stakeholders at the national and sub-national level, in both the public and private sectors playing important roles. The government needs to recognise these roles and engage these stakeholders, in order to develop a clearer sense of opportunities and priorities using both domestic and international finance.

Making good use of international ‘climate finance’

Key findings from India’s past experiences accessing international climate funds suggest that while Ministry of Environment and Forests (MoEF) is the obvious choice for making decisions on climate-related activities requiring funding, the Ministry of Finance (MoF) is better suited at negotiating large sums of international funding as it is the nodal department for receiving financial assistance from multilateral and bilateral funds. In the context of the Green Climate Fund (GCF), where India continues to play an important role in its operationalization, it is imperative that the two ministries work closely if finance accessed through the GCF is to make its way into domestic efforts on climate in a meaningful way.

One idea that has attracted a lot of interest is the creation of a new National Climate Fund, which could channel international funding. However, India already has a lot of climate funds – for instance, the coal cess-driven National Clean Energy Fund that has done little to scale up investment in clean energy though it is now getting to work; the National Adaptation Fund created during the last national budget – and Indian stakeholders will need to develop a strategy for how best to make use of the available funds to channel new and additional funding through international funds.

Ways forward on coordination around climate finance in India

A concerted strategy needs to emerge around how India could effectively link existing channels of national and international climate finance. One useful immediate step could be for the Climate Change Finance Unit and MoEF to initiate a process of engagement and interaction with other line ministries, state government, banks and businesses to consider options for maximising strategies and optimising the use of international finance from the GCF. This could help the National Designated Authority of the GCF to develop and maintain a steady roster of projects or programmes that would require new or supplemental funding.

The central objective of any national coordination mechanisms around climate finance should be to encourage the incubation of fundable ideas from relevant actors, particularly beyond the core governmental set up, about how to take meaningful domestic actions on climate change. For India, engagement with the GCF presents an opportunity to take much needed steps to better integrate international funding with emerging national development objectives in the context of a climate response.