Proposals on Scope, Modality and Processof the Green Climate Fund (GCF)

Perspectives for Private Sector Engagement in Climate Change Adaptation and Mitigation

Kyosuke Inada (Mr.)

Advisor (Climate Change)

JICA Global Environment Department

Asia-Pacific Consultation on Climate Finance and Green Climate Fund Design Sep 2, 2011 @ Singapore

Proposals for the GCF(Scope)

•GCF should address the importance of integrating climate actions (especially adaptation) into the sustainable development goal of developing countries.

•Providing a platform at the national level for policy coordination will likely to enhance effectiveness of interventions by the GCF through ensuring coherence among policy, program and project activities.

Bangladesh: Khulna Water Supply ProjectLoan Agreement Signed: May 18, 2011

Loan Amount: 15,729 Mil. JPY (approx. 200 Mil USD)

• Only about 22% of residents in Khulna, the third largest city in Bangladesh, have access to piped water supply service. Many unconnected households rely on shared public taps and spend on average 90 minutes to fetch water everyday.

• Khulna is located on the coastal belt of Bangladesh, and rivers running near the city are affected by salinity intrusion from Bengal Bay especially during dry season, and thus it is not easy to secure potable fresh water.

• The objective of the project is expansion of reliable access to safe water. The project also functions as climate change adaptation thru salinity control facilities.

Adaptation

Scope • Adaptation is a new concept used to describe response to climate

impacts - but a closer look at the concrete actions indicate that they are diverse and closely associated with usual business activities (e.g. infrastructure development).

• The scope of the GCF should address the importance of integrating adaptation and sustainable development goal of developing countries.

Projects formed to reduce the climate change

vulnerability in the existing system

Projects which are not mainly aimed to reduce the

vulnerability, but is designed to adapt to the impacts

of the climate change in achieving its main objective

Yield reduction due to

climate change= vulnerability

WithoutProject

WithProject

= adaptation

Present

Projectbenefit

= Adaptationbenefit

Yie

ld

Project compensatingfor yield reduction due to climate change

Expected yield reduction

= vulnerability

WithProject

WithProject

With climate change

PresentWithProject

+ adaptation options

Project

benefit

Adaptation benefit

Compensating theexpected shortfall

= adaptation optionsExpected yield increase

in project

Yie

ld

In absence ofclimate change

Adaptation

Scope • Providing a platform at the national level for policy coordination will

likely to enhance effectiveness of interventions by the GCF through ensuring coherence among policy, program and project activities.

Mitigation Adaptation

Strategic and Multi-layered Assistance(Examples from Indonesia and Vietnam)

Platform for Policy

Coordination

Policy,Program

and Project Activities

Proposals for the GCF(Modality)

• The risks, opportunities and exposures that businesses face are diverse. Choosing the right tool and adjusting the level of GCF intervention must be determined on a case-by-case basis.

• All kinds of ex-ante and ex-post risks need to be covered.

• It is crucial that the GCF establish a special window operated by experts familiar with the private sector.

• Grant may be preferred to give experts greater freedom to create tailor-made solutions.

Modality • The risks, opportunities and exposures that businesses face are

diverse. Choosing the right tool and adjusting the level of GCF intervention must be determined on a case-by-case basis.

• It is crucial that the GCF establish a special window operated by experts familiar with the private sector.

Category of risks and opportunities

Examples of exposures Examples of sectors most affected

1. Direct exposures of core operations

Extreme weather (damage to assets, business interruption)

Agriculture, Tourism, Mining, Infrastructure operators

2. Indirect exposures Disruption of supply chain,Rising insurance cost

Food retail, Finance, Insurance

3. Business opportunities (solution providers)

New markets or increased demand for existing products

Risk management services,Engineering & construction

4. Corporate citizenship Opportunities for ‘doing good’ by helping others adapt

Business with strong philanthropic activities

Source: PricewaterhouseCoopers (2009) “Business leadership on climate change adaptations”http://www.pwc.com/mx/es/eventos/archivo/2011-01-Encouraging-engagement-and-action-Full-Report-PUBLICATION.pdf

Adaptation

Modality • All kinds of ex-ante and ex-post risks need to be covered.

• Grant may be preferred to give experts greater freedom to create tailor-made solutions.

Mitigation

Case of PPP Geothermal Power Development

Ex-ante Ex-post

- Exploration and Drilling Risk- Regulatory / Political Risk- Transmission Access Risk

・・・・

- Production Risk- Tariff Risk- Currency Risk

・・・・

Proposals for the GCF(Process)

• Financial intermediaries and funding agencies play key roles when the private sector is facing financial, regulatory barriers - they serve as “home doctors” providing “prescriptions” for their clients.

• By enabling access from existing financial intermediaries and funding agencies, the GCF can make better use of its funds.

Process

Preparatory Survey For PPP Infrastructure

[funded by JICA]

Renewable Energy and Adaptation to

Climate Technologies (REACT) window under the Africa

Enterprise Challenge Fund (AECF)

[funded by UK DFID]

Launched Nov -Dec 2010 Kenya, Tanzania, Rwanda, Uganda, Burundi.

Open competition to companies for innovative business ideas that help communities to cope with climate change and increase access to low cost clean energy. Open to for-profit companies, grant up-to 1.5 mil USD.

To qualify for funding, a business must provide matched funding and the idea must demonstrate a positive impact on the rural poor through increased incomes, employment & productivity or reduced energy costs.

http://www.dfid.gov.uk/Documents/UK%20FAST%20START%20CASE%20STUDY%20-%20REACT%20RENEWABLE%20ENERGY.pdf

Started in fiscal 2010, 19 projects in Asia have been selected through 3 calls for proposal. Up to 150 mil JPY (around 2 mil USD) support by JICA.

Interested private sector entities submit study plans for infrastructure projects to be implemented based on public-private cooperation, along with proposals for necessary policy and regulatory improvements (funding by JICA to conduct preparatory survey).

Some of the approved projects are in sectors contributing to climate resilient development in urban Asia (e.g. water supply and sewerage).

http://www.jica.go.jp/english/news/press/2011/110620.html

Adaptation

ProcessMitigation

Case of Indonesia Geothermal Power Development

Technical Cooperation for preparation of master-plans Concessional Loans for construction of high priority

geothermal power plants Public funds not enough to develop the estimated 27,000

MW potential in Indonesia’s geothermal power

Private sector finance is crucial to develop geothermal, a low-carbon solution to Indonesia’s power supply

JICA listens to the private sector to identify barriers for participation

JICA discusses with the Government of Indonesia on private sector engagement policy in geothermal

Regulatory environment is improved

Thank You for Your Attention!Contact:

JICA Global Environment Department

Kyosuke Inada (Mr.), Advisor (Climate Change)

E-mail: gegoc@jica.go.jp

URL: http://www.jica.go.jp/english/operations/climate_change/index.html