Dialogue. I ns ight . S olut ions.

P O L I C Y R E P O R T:

N E X T S T E P S F O R C O N V E R T I N G I N T E N D E D N AT I O N A L LY D E T E R M I N E D C O N T R I B U T I O N S I N TO A C T I O NWRIT TEN BY:

Hannah Pitt, Paolo Cozzi and Laurence Blandford

CONTRIBUTIONS FROM:

Leila Surratt

M A R C H 2016

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Acknowledgements This paper was written by Hannah Pitt, International Policy Associate, Paolo Cozzi, International Policy Analyst and Laurence Blandford, Director of International Policy Analysis, with contributions from Leila Surrat, Chief Operating Officer. The authors are particularly grateful to Ned Helme, former President of CCAP, whose engagement on INDC conversion and the models that this paper includes was seminal. A special thank you to Carmen Martinez, Communications and Events Assistant, who put this report together.

This project is part of the International Climate Initiative (IKI). The German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) supports this initiative on the basis of a decision adopted by the German Bundestag.

The views expressed in this paper represent those of CCAP and not necessarily those of any other institution or individuals mentioned above. For further information, please contact Hannah Pitt at hpitt@ccap.org.

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Acronyms

APA Ad Hoc Working Group on the Paris Agreement

CCAP Center for Clean Air Policy

COP Conference of Parties

CMA Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement

GCF Green Climate Fund

GEF Global Environment Facility

INDC Intended Nationally Determined Contribution

NDC Nationally Determined Contribution

UNFCCC United Nations Framework Convention on Climate Change

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Contents Acknowledgements ................................................................................................................................. 1

Acronyms ................................................................................................................................................ 2

Introduction ............................................................................................................................................ 4

Why convert INDCs? ................................................................................................................................ 4

Increased UNFCCC ambition through the five year cycles ........................................................................ 5

What is a converted INDC? ...................................................................................................................... 6

How is an INDC converted? ..................................................................................................................... 7

INDC investment strategy to mobilize support ......................................................................................... 8

Conclusions and recommendations to promote INDC conversion ............................................................ 9

INDC conversion should be a strategic focus of climate finance ......................................................... 10

Support for INDC Conversion should be varied to match with country needs ..................................... 10

INDC investment strategies should consider all sources of finance..................................................... 11

UNFCCC rules should support conversion .......................................................................................... 12

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Introduction After the landmark deal in Paris, governments are now in the process of converting their Intended Nationally Determined Contributions (INDCs) into tangible and ambitious mitigation policies and programs. With unprecedented climate commitments by developing country Parties on the table, strong political momentum coming out of Paris and the availability of significant climate finance with the launch of the Green Climate Fund (GCF) and other public and private pledges, it is timely to consider how countries can turn INDC goals into concrete action.

CCAP’s discussion paper released prior to Paris, “Converting Intended Nationally Determined Contributions into Action,” highlights the importance of turning INDC targets into policies, measures and finance-ready investment strategies quickly, and the need for financing for developing countries to carry this out. The paper takes stock of the state of play in converting INDCs by examining INDCs from key developing country Parties and explores ways to build on Paris’s momentum to advance the conversion process after Paris.

Taking into account the results of Paris, ongoing discussions in the GCF, and continued engagement with CCAP partner countries, including at CCAP’s February 2016 regional dialogue with Latin American policymakers, this policy brief aims to take forward CCAP’s work on INDC conversion and crystallize key recommendations for policy makers in developing and developed countries, as well as for funding agencies and other stakeholders.

This policy brief aims to build a shared understanding of INDC conversion by taking a deeper look at what elements a “converted” INDC might include and the steps involved in the conversion process, including considerations for the mobilization of finance, with a view to accelerate this work at the country level. We then consider how countries might wish to identify and present strategic and catalytic uses of international financing, and how the work of converting INDCs can be facilitated through the provision of support, including from the GCF, and through the elaboration of the Paris agreement and related decisions.

Why convert INDCs? The wide adoption of economy-wide mitigation goals in Paris is a critical step in increasing global ambition. In general, however, greater specificity in domestic policy making will be needed to turn pledges into specific, implementable policies and programs and finance-ready investment plans.

For developing countries, the process of INDC conversion can:

• Promote ambition by helping countries to identify or clarify effective pathways to reach their INDC goal, as well as opportunities for action with impacts beyond the INDC target date;

• Optimize use of resources by encouraging the effective use of domestic and international resources, and lower transaction costs through comprehensive approaches to mitigation;

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• Achieve synergies between mitigation and development goals by aligning national strategies and plans, including the INDC, national development plans, and Nationally Appropriate Mitigation Actions;

• Make proposals more attractive to funders by enabling countries to justify the need for support in context of the larger country strategy; and

• Attract private sector investment by establishing long-term policy signals and developing a pipeline of viable projects that investors need to justify engagement.

• Support long-term, low carbon development strategies: The Paris decision text invites countries to put forward “mid-century, long-term low greenhouse gas emission development strategies” by 2020. INDC conversion can inform these efforts by helping countries identify medium and long-term trends, as well as barriers that may require longer-term efforts to overcome.

For climate finance institutions, the successful conversion of INDCs can help deliver a pipeline of high impact programs. Strong, programmatic proposals anchored in a broader country strategy can mobilize private financing, and make the case for additional replenishments.

Increased UNFCCC ambition through the five year cycles In Paris, the international community committed to keeping the rise in global average temperature to “well below” 2 degrees Celsius. Developed country Parties have pledged to mobilize $100 billion annually by 2020, and to consider an enhanced quantified goal in 2025. INDC development and conversion is an ongoing domestic policy planning process that is critical to achieving these global goals.

The Paris Agreement provides a framework for this bottom-up and iterative process, wherein Parties report on progress toward their commitments, and strengthen the ambition of their targets every five years (see Figure 1). The “facilitative dialogue” to assess collective progress in 2018, followed by the global stocktake in 2023 and every five years thereafter, can encourage ambitious action, and inform Parties’ discussion on the ambition of new NDCs and the scale of financial mobilization required.

The initial cycle gives Parties a window before confirmation of their INDCs as NDCs ahead of 2020. This allows Parties some time for INDC conversion, which will be particularly important to the success of the first commitment period. For many developing countries, the implementation of comprehensive national climate change plans represents significant new efforts that will require putting in place policy frameworks and enabling environments that can lay the groundwork to ratchet up ambition over time. There is a significant opportunity to build national capacity for effective climate action over this initial conversion cycle that should be seized in a timely fashion given the relatively short time until INDCs need to be confirmed.

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With the strong framework of the Paris Agreement in place, more remains to be done to ensure support can be effectively provided for the conversion of INDCs, and that the rule-making process following the adoption of the Agreement takes these needs into account.

Figure 1: INDC conversion and increased UNFCCC ambition through the five year cycles

What is a converted INDC? A converted INDC reflects a comprehensive national plan to achieve the INDC target. It will likely include information on:

• National and sectoral goals, including quantified information for all relevant goals adding up to INDC target. This will include the formally-committed mitigation target, as well as other sectoral or regional goals, and sustainable development priorities.

• How these goals will be achieved, including fully-specified policies, measures, mandates, as well as enabling frameworks to support INDC implementation and longer-term goals.

• How costs will be met, including through government spending, international public and private financing, or through policy mandates that require households and businesses to bear costs (e.g., Renewable Portfolio Standards, vehicle efficiency standards).

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Ultimately, a converted INDC would therefore formally confirm the target, identify sectoral and cross-cutting policies and measures, specify host-country public finance interventions, and present an overall investment strategy for international finance to implement the INDC.

Countries seeking support for implementation will likely want to publish a strategy that further specifies support needs and a project pipeline that can mobilize investment.

How is an INDC converted? Countries will pursue a number of steps in carrying out the process of converting their INDCs, as illustrated in Figure 2. To begin, countries will likely clarify priorities and goals for INDC implementation. While some of this work may have been done during the INDC development process, countries may wish to further break down the broad mitigation goals communicated in the INDC into sectoral objectives, identify sustainable development goals, and define the key barriers to action in light of country circumstances. This will initiate a process to select options to achieve these goals, which is likely to involve a number of iterations as countries assess technical and political considerations for various measures, sectoral strategies and cross-cutting approaches.

Some of these considerations might include relative costs, expected contribution to greenhouse gas reductions, sustainable development benefits, the actions of peers, established international best practices, as well as the feasibility of policy actions and the level of domestic public resources required to carry out identified measures. This process is likely to underline the case to move ahead with low-hanging fruit, such as the deployment of commercially available low-carbon energy technologies, even as more complex options are further assessed and deliberated.

Countries will require different types of support depending on how far along they are in the conversion process. Some INDCs are supported by existing climate change frameworks and embedded in national budget and planning processes, and may only require support to mobilize finance for specific programs. For others, the INDC represents the country’s first effort to develop a comprehensive climate change plan, and broader support may be needed.

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Figure 2: A model of the INDC conversion process

INDC investment strategy to mobilize support In CCAP’s review of key developing country INDCs, 35 out of the 39 INDC examined indicated they can achieve a greater level of ambition conditional on international support.1 For these countries, a key outcome of the conversion process will be to develop finance-ready strategies that can help leverage their own resources and attract public and private international financing for implementation.

Information on INDC implementation costs and financing varies. Roughly half of the INDCs that CCAP reviewed estimate total investment costs to achieve the proposed greenhouse gas reductions. A fifth provide full costs by sector and for specific measures, and 14% present an overall financial request for international support.

In general, however, INDCs lack detailed information on costs, domestic financing conditions and feasibility that can inform funding decisions. An INDC investment strategy, or a broader national strategy for climate finance that could extend beyond the INDC target date, can provide this information to help countries make a compelling case for international climate finance.

Countries seeking support may therefore wish to not only have a strategy to attract financing, but to publish their “investment strategy” or “national climate finance strategy” to highlight key issues and answer key questions for potential financiers and funders related to the strategic and catalytic use of climate financing within the broader context of climate-related public and private expenditure in the country (see Figure 3).

1 CCAP 2015. “Converting Intended Nationally Determined Contributions into Action”.

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Figure 3: Potential elements of an INDC investment strategy

The GCF readiness program currently provides support for the development of country programs that define priorities for the GCF and potential proposals the country intends to bring to the Fund. However, beyond identifying programming opportunities for a specific funding source, a broader investment or climate finance strategy could help fully identify policy and market barriers that need attention, point to where domestic resources are being deployed, and therefore attract new financing from a wider set of public sources and private financiers within an overall strategic context in which international public financing can be used to best effect.

Conclusions and recommendations to promote INDC conversion Before 2020, countries should feel comfortable that they will be able to meet their INDC goals, or go beyond them to achieve even greater levels of ambition. Beginning the process of INDC conversion immediately can help ensure implementation and promote ambition.

Early action will be particularly important during the first five year commitment cycle, as countries establish the processes and frameworks that will underpin long-term transformation. This will in turn improve countries’ capacities to develop long-term strategies and subsequent NDCs. The coming years are also a pivotal time for establishing policy frameworks at the global level that address INDC conversion and implementation, both as the rules under the Paris Agreement are determined, as the Global Environment Facility (GEF) prepares for its 7th replenishment, and as the GCF ramps up operations to trigger the first formal replenishment in 2017.

The GCF has taken some steps to enhance the provision of readiness and project preparation support that could facilitate INDC conversion. However, more can be done to broaden and expedite support to effectively facilitate the conversion of INDCs into financeable investment strategies.

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The outcomes of Paris make clear that the GEF should play a meaningful role in INDC conversion. The guidance from the Conference of Parties (COP) to the GEF requests the GEF to consider how to support developing country Parties in “formulating policies, strategies, programs and projects” that contribute to the implementation of their INDC, starting in 2016. How the GEF can effectively provide this support needs to be determined. There are several key considerations to effectively take forward the work of INDC conversion:

1) INDC conversion should be a strategic focus of climate finance 2) Support for INDC Conversion should be varied to match with country needs 3) INDC investment strategies should consider all sources of finance 4) UNFCCC rules should support conversion

INDC conversion should be a strategic focus of climate finance The GCF, other public institutions and funders, and private investors are actively looking for a strong pipeline of climate-friendly investments. While much emphasis has been given to mobilizing support for implementation, more efforts are needed to scale up support for the development of country plans and finance-ready programs to ensure that significant volumes of transformational financing can flow at scale without sacrificing project quality.

For the GCF, readiness and preparatory support should be made a strategic priority and core focus of Fund programming, to help build a pipeline that supports the Fund’s objective to contribute to country-driven transformation. To this end, the GCF should consider significantly scaling up the resources allocated to readiness and preparatory activities in support of achieving INDC and sustainable development goals. At the same time, the approval process for readiness and project preparation funding should be streamlined to permit timely disbursement in support of rapid country action.

The GEF should consider how they can fulfill the guidance from the COP in a way that builds on its historical strengths and is coherent with the GCF and other institutions providing support. Given its historical focus, this may include provision of support for national capacity building, integration of climate change projects and programs into national policy frameworks, cross-cutting programs with broader environmental benefits (e.g. biodiversity), project preparation, and reporting.

Support for INDC Conversion should be varied to match with country needs Countries will require different types of support to successfully carry out the conversion process. While some countries are essentially ready to start the process of mobilizing finance for programs in support of their INDC, others may need broader support to develop or advance national climate plans and put in place enabling environments and institutions that can promote low-carbon investment.

Support for INDC conversion can come from a variety of sources, including UNFCCC institutions and other organizations. While some entities may be best positioned to support a more narrowly-defined set of activities, cooperation to advance comprehensive and long-term planning and processes may be better able to advance INDC conversion and implementation.

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Given its emphasis on transformational country action, the GCF is well placed to take a comprehensive approach to INDC conversion that is responsive to a wide range of country needs. The newly-established project preparation facility should afford countries the flexibility to seek preparatory support for projects and programs of varying sizes (larger the current limitation to small-scale projects under $50M), and allow countries to partner with the domestic or international accredited entity or support provider that best suits their needs.

The existing GCF readiness program can complement the project preparation initiative by financing more “upstream” activities, including the development of concept notes and preparation of country programs, and support to assist countries to develop policy frameworks, long-term infrastructure plans, and programmatic approaches that build project pipelines.

INDC investment strategies should consider all sources of finance INDC investment strategies or national climate finance strategies that consider all sources of finance, rather than addressing programming only by individual funding source, can identify strategic and catalytic uses of international support and help attract financing from a wider set of public sources and private financiers. Considering a wider set of finance opportunities can also build broader political buy-in to achieve INDC goals.

These strategies should then be given weight by donors and funding institutions as they look to identify the best ways to support the transition to a low-carbon global economy. If drafted correctly and given appropriate domestic political backing, it is likely that private financiers will also give them weight in targeting their investments.

Support from the GCF and the GEF should give all countries the opportunity to prepare comprehensive INDC investment strategies or national climate finance strategies, considering a wide range of funding sources beyond the Financial Mechanism of the UNFCCC.

To promote ambitious, country-driven programming, the Board should be advised by the Secretariat on how projects and programs being considered for funding align with country strategies and contribute to transformational outcomes consistent with countries’ INDCs – this advice would be usefully informed by INDC investment strategies or national climate finance strategies.

While investment/climate finance strategies will reflect national priorities and circumstances, guidance on key features of a compelling strategy and a coherent system of support for their development could help accelerate the process and these strategies more useful for potential funders. As the GEF and the GCF consider how to support countries to mobilize finance in support of their INDC goals, they should look for opportunities to align or harmonize their approach.

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UNFCCC rules should support conversion With a strong agreement and decisions adopted, rule-making following the adoption of the Paris Agreement needs to take account the process of INDC conversion and implementation. There are a number of opportunities to enable the conversion process and provision of support, including:

• Transparency of action and support: The Ad Hoc Working Group on the Paris Agreement (APA) has been tasked with developing new reporting guidelines for consideration at COP 24 and adoption at the Meeting of the Parties to the Agreement at its first session (CMA1). The modalities and guidelines for reporting on progress toward achieving INDC commitments should (i) take into account that different countries have different capacities to convert INDCs into policies, measures and investment strategies and to project their impacts and (ii) encourage timely and comprehensive conversion by providing an opportunity for Parties to have their efforts, and progression in capacity, recognized.

• Communications on finance: Parties that provide support are directed to report on this assistance, and Developed country Parties are also directed to biennially communicate anticipated support to be provided to developing country Parties. In both cases, Parties should address support for INDC conversion, including technical cooperation, capacity building and financial assistance.

• INDC information and guidance: The APA is charged with providing further guidance to Parties on information to be included in communicating their INDCs by CMA1. Such guidance can encourage comprehensive and transparent commitments; for example, promoting specificity on planned policies and measures, accurate emission forecasting, as well as domestic contributions and financing needs.

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