Financing Climate Change Adaptation – An Overview

May 2011

Financial and Inv’t Flows for Climate Action

in Developing Countries

Source: Atteridge et al. (2009). Bilateral Finance Institutions and Climate Change: A Mapping of Climate Portfolios, Stockholm

Environment Institute.2

A few main channels we are

describing here…

Financing Climate Change Adaptation

World Bank

GEF

Others

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Efficient combination of resources can

maximize and leverage public and

private sources

Each source may address different set

of needs, risks or barriers

GEF

Least Developed Country Fund

Special Climate Change Fund

The Adaptation Fund

The World Bank

Pilot Program for Climate Resilience

Global Facility for Disaster Reduction

& Recovery

Risk Instruments

IDA/IBRD

Other TF

DonorsRecipients

Pilot Program for Climate Change Resilience (PPCR)

Governance Structure

Unique governance structure of CIF Trust Funds (i.e. CTF and STF) fostering inclusion and consensus-based decision making

◦ Equal representation of donors and recipients

◦ a broad array of Observers

Implementing bodies: AfDB, ADB, EBRD, IDB, IBRD, and IFC

PPCR Subcommittee :

◦ Six donor and six recipient countries, plus a high-level representative of the Adaptation Fund Board

Objective

Help highly vulnerable countries pilot anddemonstrate ways to integrate climate riskand resilience into core developmentplanning (national and sectoral);

Funding public and private sectorinvestments identified in those plans;

Complementing other ongoing activities.

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Improved low carbon, climate resilient development

Improved integration of resilience into country

development strategies, plans, policies, etc

Increased capacity and consensus on

integration of climate resilience into country

strategies

Increased knowledge & awareness of CV & CC effects (e.g. CC modeling, CV impact,

adaptation options) among government / private sector / civil society

Investments (e.g., in agriculture, water,

coastal areas, infrastructure, etc)

Increased other public & private

sources of financing / investment

Capacity Building

Policy Reform / Development / Enabling Environment

New & additional resources supplementing existing ODA flows

Increased learning and knowledge about

climate vulnerability & adaptation

New & additional

resources for climate

resilience

Enhanced integration of learning / knowledge into climate resilience

development

Global - CIF Final Outcome(15-20 yrs)

Project/Program -PPCR Outputs & Outcomes(2-7 yrs)

Program –PPCR Inputs

Project/ Program-PPCR Activities(1-7 yrs)

CIF Program

InvestmentsKnowledge

Management

Increased resilience in investment

program/project specific agriculture, water, coastal areas,

priority infrastructure, etc

Country - PPCR Catalytic Replication Outcomes(5-10 yrs)

Improved institutional structure and

processes to respond to CV & CC

Scaled-up investments in resilience and

their replication

Regional level:Replication of PPCR

learning in non-PPCR countries

Country - PPCR Transformative Impact (10-15 yrs)

Improved quality of life of people living in areas most affected by climate variability (CV) & climate change (CC)

Increased resilience in economic, social, and eco-systems to CV & CC through transformed social and economic development

Leveraging

PPCR Logic Model – flexible FW to track progress on program level

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PPCR-Conditions and Eligibility Requirements

Country eligibility based on:

(a) ODA-eligibility (according to OECD/DAC guidelines); and

(b) an active MDB country program.

Priority to highly vulnerable Least Developed Countries eligible for MDB concessional funds, including the Small Island Developing States.

Fulfill the criteria of the respective trust funds.

Countries submit ‘country investment strategies’.

Financing processed through the MDBs selected by the country with the operations following their policies and procedures.

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Country Pilot Programs

Regional Pilot Programs

Bangladesh, Bolivia, Kingdom of Cambodia , Republic of Mozambique, Nepal, Republic of Niger, Republic of Tajikistan, Yemen, Zambia

Caribbean Dominica , Grenada , Haiti, Jamaica, Saint Lucia, Saint Vincent and the Grenadines Pacific Papua New Guinea, Samoa , Tonga

PPCR- Design/Process

Phase I

• Development of Strategic Program for Climate Resilience (SPCRs)

• Funding: Up to $1.5 million, with an advance grant of up to 25% of the request amount

Phase II

•Implementation of the SPCRs•Technical assistance •Investments to support climate resilient investments in key/priority sectors (such as agriculture, water management, infrastructure..)

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• PPCR provides both grants and highly concessional loans (equal or more than IDA terms), with significant portion expected to be in form of grants. Countries may choose to only access PPCR grant resources.

•Total Fund Deposited (as of Feb 2011): $ 305.85 mill•Grants:

Preparation Activities Preparation of SPCR: $ 1.5 mil max.Project preparation grants: No cap (included in envelope requested for SPCR)

AllocationCountry Pilots Allocation: USD 40-50 million per country Regional pilot programs allocation: USD 60-75 million per program

PPCR-Allocation of Resources

Concessional loans

Countries eligibility for borrowing, based on their financial and macro-economic circumstances:• Some eligible to borrow on standard MDB loan terms.• Some may access only subsidized credit through a variety of windows• Some eligible through country strategy assistance cycle for a mix of credit and grant financing• Some only eligible for grant financing.

•Countries' risk of debt distress is assessed

•MDBs will seek to use PPCR funds for concessional loans in private sector markets as well

Grants

$ 614 mill

Concessional Finance

$ 357.75 mill

Total Pledges

$971.75 mill

(as of Feb 2011)

PPCR- Project Example

The requested PPCR funds (US$50 million grant, US$60 million loans) will leverage an additional US$515 million from ADB and the World Bank

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Bangladesh SPCR

Investment Plan Components MDB Requested PPCR

Amount ($million)

Investment Project 1: Promoting Climate

Resilient Agriculture and Food Security IFC 13.1

Investment Project 2: Coastal Embankments

Improvement and Afforestation WB 25

Investment Project 3: Coastal Climate

Resilient Water Supply, Sanitation, and

Infrastructure Improvement

ADB 71

Technical Assistance 1: Climate Change

Capacity Building and Knowledge

Management

ADB 0.5

Technical Assistance 2: Feasibility Study for a

Pilot Program of Climate Resilient Housing in

the Coastal Region

IFC 0.4

GFDRR (Global Facility for Disaster Risk Management)

Structure

Administered by: The World Bank

3 tracks:

Track I – Global and Regional Cooperation

Track II- Disaster Risk Reduction Mainstreaming

Track III- Sustainable Recovery

Objective:

To help developing countries reduce their vulnerability to natural disasters and adapt to climate change

Total Amount: $258 million pledges and contributions (as of Dec 30, 2010)

Since GFDRR’s inception in 2006, more than $27 million or 2/3rd of financial assistance has primarily focused on climate change adaptation

Eligibility: From under $100,000 (individual grants) to over $1 million (country programmes)

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GFDRR – Project Example

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Fiji: Integrated Flood Management in the Pacific-Nadi Flood Pilot ($1,399,000)

Objective: Pilot an integrated flood management approach in the Nadi basin as a measure to reduce disaster risk that can be replicated in other watersheds in Fiji and other Pacific countries

Components: 1) Institutional Strengthening of Flood Forecasting and Warning Systems:

• Develop a standard operating procedure for coordination, monitoring and response to flood events including data collection, management and dissemination and

• Integrate the flood forecasting and warning system with meteorological services and arrangements

2) Flood Risk Assessment, Identification of Mitigation Measures and Dissemination:

• Acquire baseline data of sufficient quality to enable local level flood risk modeling and identification of the most appropriate flood mitigation measures

3) Institutional Strengthening for Integrated Flood Management:• Develop or strengthen the policy, institutional and regulatory framework that

support integrated flood management

GFDRR – Project Example

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Strengthening of Flood and Drought Early Warning System for Cambodia ($100,000)

Objective: To support the Ministry of Water Resources and Meteorology to strengthen its

capacity to develop a fully operational flood and drought forecasting centre for Cambodia in

cooperation with Mekong River Commission (MRC)/Regional Flood Management and

Mitigation Center (RFMMC) and Department of Meteorology (DoM)(TRACK II: Mainstreaming DRR; Ongoing Project)

Components:

1) Assessment of existing hydro-met network and recommendation for

improvement • Detailed inventory of stations, equipment and their conditions;

• Recommendations for improvement and upgrading.

2) Assessment of Institutional capacity and preparation of capacity building plan • Integrated capacity development program (on-the-job training, specialized training

courses, workshops, higher studies, etc),and capacity building of the private sector.

• Institutional capacity building plan and program for DoM and DoH and other specialized

agencies.

• Staff development plan based on a training needs assessment.

3) Development of strategy and program of flood and drought monitoring,

forecasting, and dissemination of early warning: • Rainfall data from all real time / near real time reporting stations;

• Estimate catchment rainfall over the forecast period;

• Obtain Mekong river levels and flows from RFMMC, both observed and forecasted for

WBG-

Risk Instruments

Catastrophe Risk Insurance Facilities (help the poor cope with economic repercussions of disasters before they happen)

MultiCat Program (fixed income securities that insure sponsor of bond against pre-defined set of natural disasters)

Index Based Weather Derivatives (to provide risk management products to member countries, transferring the weather risk to the market.

Catastrophe Deferred Drawdown Option (A contingent loan that provides immediate liquidity following a natural disaster)

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IDA (International Development

Association)

One of the largest sources of assistance for the world’s 79 poorest countries

Replenished at the end of 2010 (Total $ 49.3 billion) = IDA 16

‘Achieving Climate Resilient Development’ as IDA 16’s ‘Special Theme 3’ with an objective to Support Climate Resilience in IDA Countries

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IDA’s strategy in CC

Five closely linked areas:

(i) discussing in 100 percent of IDA CASs CC vulnerabilities, and including activities in CC mitigation and adaptation areas when requested by the recipient country;

(ii) scaling up IDA Analytic and Advisory Activities on adaptation and mitigation

(iii) establishing coding system to measure the share of IDA investments that provide climate adaptation and mitigation co-benefits, and reporting on the number of projects that aim at climate change co-benefits in their design by Mid-Term Review.

(iv) analyzing in all projects in climate change sensitive sectors the potential climate impact of project activities to ensure that they are consistent with the climate change mitigation and adaptation strategies of the country;

(v) providing expertise to and continuing dialogue with development partners(including OECD/DAC and MDBs) on Rio-Markers with the objective of developing and agreeing on quantitative measures of global financing for climate adaptation and mitigation actions

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Climate Change Adaptation Co-benefit Coding- Agriculture, Fishery, and Forestry

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Code Activities with Adaptation Co-benefits

AB: Agricultural extension and Research

•Develop, test and introduce practices or techniques more resilient to CC&CV in farming systems, plant breeding, and livestockbreeding.•Develop, test and introduce management systems for commons better adapted to CC&CV.•Forestry research on increased and new threats resulting from CC&CV.•Ex situ conservation of species and germplasm adapted to CC&CV.•Support extension services to incorporate CC&CV in their programs.

AH: Crops

•Recover degraded areas for crop production through innovative management practices.•Soil management practices that control soil erosion, nutrient loss and improve the water regime in the soil profile (e.g. minimum tillage).•Crop storage facilities designed to reduce vulnerability to CC&CV.•Develop and introduce weather or climate indexed crop insurance programs.

AI: Irrigation and drainage

•Change watershed, wetland and irrigation management systems and practices to reduce vulnerability to CC&CV.•Integrated ecosystem management approaches for watersheds and wetlands to reduce vulnerability to CC&CV.•Construct dams and water storage systems to manage changes in the water cycle due to CC&CV.

AJ:Animal Production

•Change management practices or techniques to reduce vulnerability to CC&CV in animal health service, pasture management, fodder production and storage practices, •Change fish farming and aquaculture practices or techniques to reduce vulnerability to CC&CV (e.g due to changes in water quality or variation in fishing season).

AT: Forestry

•Restore or maintain environmental services (including watershed functions). •Maintain resilience of forest systems.•Maintain productivity of forest systems.•Increased use of trees, woodlots, forests, wood and non-wood products in rural adaptation strategies.

AZ:General agriculture, fishing and forestry

•Safeguard biodiversity as a resource to cope with CC&CV.•Establish protected areas for species migration responding to CC&CV. •Increase landscape connectivity in response to CC&CV.•Conserve threatened and endangered species ex. Situ.•Invasive species management responding to CC&CV.•Use of ecosystem functions to cope with CC&CV.•Integrated Coastal Zone Management responding to CC&CV.

The Global Environmental

Facility (GEF) Funding for the preparation of Non-Annex I countries’ national communications

Can cover incremental costs of projects with global climate benefits.

Supports capacity-building and demonstration projects related to adaptation.

Strategic Priority on Adaptation (SPA) Trust Fund

Secretariat Support for The Adaptation Fund

Manages

◦ Least Developed Country Fund (LDCF)

◦ Special Climate Change Fund (SCCF)

GEF replenished in June 2010 as GEF 5 (climate change allocated the largest funding- USD 1.35 billion- a 32% increase), but does not include LDCF and SCCF

Objectives:

Operating entity of the financial mechanism of the UNFCCC

Eligibility: Parties to UNFCCC, non-Annex I Parties or eligible to borrow from the WB (IBRD and/or IDA) or eligible recipient of UNDP technical assistance.

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GEF-Least Developed Countries Fund (LDCF)

Structure

Operating entity: GEF

Objective

Focus on the unique, urgent, and immediate adaptation needs as identified in National Adaptation Programs of Action (NAPA)

Resources: Around $100 mill available for new projects

Ceiling - $10 mill per country (recently up scaled)

Eligibility:

48 Least Developed Countries (LDCs) that have completed a NAPA

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Project Example: LDCF

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Increasing resilience to climate change and

natural hazards in Vanuatu

GEF Agency: WB

LCDF Grant: $ 3 mill Co financing: $3.21 mill

Designed to:

(i) address the main climate and weather related hazards

(ii) address immediate priorities already identified through the

NAPA, NAP and other consultation processes (GFDRR stock-take)

(iii) support the country’s sustainable development priorities

(iv) take account of the existing and potential capacity for

implementation

(v) The likelihood of achieving results.

Project Example: Kiribati Adaptation Phase III

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Objective:

To improve the resilience to the impacts of climate change

on freshwater supply and coastal infrastructure

• Total financing: USD 10.8 mill

• Estimated Board Date: July 7, 2011

• Groundwater Abstraction Systems; Water ReticulationManagement (Leakage detection and repair of real losses);Capacity Building; Community Behavior Change Campaign;Roof Rainwater Harvesting; Advisory Support for WaterProjects; Improved Water Management Governance

Improve water resource use and

management

(US$4.3 mill)

• Investments in Shoreline Protection; Advisory Support forShoreline Erosion Mitigation Measures; Asset Management ofCoastal Infrastructure; Mangrove Replanting in Outer Islands

Increase coastal resilience

(US$2.9 mill)

• Technical Support to the Strategic Risk Management Unit, OB;Coastal Management Policy and Locally Managed AdaptationPlanning; Communications & Media; Climate Change WebsiteMaintenance; Disaster Fund Small Grants Scheme

Strengthen the Capacity to Manage

the Effects of Climate Change and

Natural Hazards

(US$2.2 mill)

Ma

in C

om

po

ne

nts

KAP I

2003-2006

TA –Increase awareness

KAP II

2006-2011

Pilot Implementation Project

KAP III

Special Climate Change Fund (SCCF)

Structure

Operating Entity: GEF

Objective

To implement adaptation interventions to expand and fortify the resilience of specific

national development sectors to the expected effects of climate change.

Fund measures that take a long-term view of climate change adaptation and appropriate preemptive measures. Ideally catalyze additional resources from bilateral and/or other multilateral sources of financing.

Resources: $ 33 mill available for new projects

Eligibility

Non-Annex I countries with focus on Africa, Asia and small island states

Current requirement is 1:4 co-financing

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SCCF- Project Example

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Philippines CC Adaptation project, Phase I

Objective: Pilot project to develop and demonstrate approaches that would enable targeted communities to adapt to the potential impacts of climate variability and change. This would be achieved by strengthening existing institutional frameworks for climate change adaptation, and by the demonstration of cost-effective adaptation strategies in agriculture and natural resources management.

Main Project Components1. Strengthening the Enabling Environment for CCA2. Demonstrating CCA Strategies in the Agriculture3. Enhanced Provision of Information for climate risk mgmt

SCCF: $ 4.9

mill

Co financing:

$ 50.5 mill

The Adaptation FundStructure

First major international fund solely committed to adaptation to climate change.

Set up under the Kyoto Protocol of the UNFCCC

Grant funding- no requirement for co-financing

Operating Entity- The Adaptation Fund Board, UNFCCC

Financed from a 2% share of the CER proceeds on the Clean Development Mechanism (CDM) project activities and other sources of funding

Objective

Financing concrete adaptation activities that are country driven and are based on the needs, views and priorities of eligible Parties.

Finance :

Funding availability of $ 187.08 million, with $ 211.88 million as funds held in trust (as of January 31, 2011),

$ 353 million (medium estimate, by end-2012)

Eligibility

Developing country Parties to the Kyoto Protocol

Project types:

Small Scale (upto $ 1mill)

Regular (over $ 1 mill)

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Project Example- The Adaptation Fund

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Addressing Climate Change Risks on Water Resources in Honduras: Increased Systemic Resilience and Reduced Vulnerability of the Urban Poor

Regular Project $ 5.62 mill

Goal:

Contribute to incorporate climate change issues into the planning

processes and investment decisions of key line ministries – institution

capacity building and improving the tools of relevant institutional

structures (National Water Authority)

Safeguard Tegucigalpa and the watersheds that provision the capital city

in response to existing and projected water scarcity and to vulnerability to

extreme climate events

An Outcome of COP 16...Green Climate Fund

A decision at COP 16-Cancun

Governed by Green Climate Board

To support projects, programmes, policies and other activities

in developing country Parties using thematic funding

windows.

WB invited as interim trustee for 3 yrs

The details of the Fund will be discussed throughout the year

until the next negotiation of COP 17 in Durban, South Africa in

December 2011

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Fast Start & Long Term (1)

•Fast Start Finance (2010-12)

-To Date: $30 billion pledge legitimized at Cancun,

about $12 billion committed

•Goal to mobilize Long-term Finance of $100 billion per

year by 2020 agreed in Cancun

-Variety of sources including: public, private,

bilateral, and multilateral

-Significant share of multilateral funding for

adaptation should flow through the Green Climate

Fund

•Issue: How to leverage (multiply) public funds through

mixing with private, public, and carbon market funding

Climate Finance Challenge

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Additional investment needs in developing countries, by 2030

Source: World Bank, 2010

Cost of developing countries to

adapt to climate change between

2010 and 2050 is estimated at

US$70 billion to US$100 billion a

year at 2005 prices- World Bank

study -Economics of Adaptation to

Climate Change.