Combining public financing and market- based instruments to improve climate resilience Best practices in Latin American cities Marcela Tarazona, Senior Consultant, Oxford Policy Management 15 May

Outline Introduction An integrated approach to urban climate resilient interventions Typology of funding sources available to cities – National sources – Local sources – Private sector – International finance Recommendations 2

Introduction Strategic importance of cities: – Occupy 1.5 per cent of the world’s area – Produce half of the worlds’ GDP – 75% of LAC’s population lives in cities Cities and climate change: – More than 80% of the world’s GHG emissions – 80% of global adaptation costs will be urban Cities are not receiving sufficient access to climate finance 3

Outline Introduction An integrated approach to urban climate resilient interventions Typology of funding sources available to cities – National sources – Local sources – Private sector – International finance Recommendations 4

Integrated approach to urban climate resilient interventions Cities need an integrated approach to climate change intervention that combines a set of financial instruments and resources Climate finance can provide important additional resources for climate change activities – Improve access to national sector programmes – Expand local fiscal resources based on prioritized sector investments within urban development plans – Increase private investment and PPPs – Add international finance (promising new mechanisms) – Use Municipal Climate Change Action Plans as a strategic and operational instrument to integrate investments and diverse sources of finance 5

Outline Introduction An integrated approach to urban climate resilient interventions Typology of funding sources available to cities – National sources – Local sources – Private sector – International finance Recommendations 6

Typology of funding sources available to cities Sources of climate funding for cities can be divided in four broad categories: – National sources – Local sources – Private sector – International finance 7

Sources of national finance Improve access to national sector programmes – Access to national programmes in various sectors to fund local projects (solid waste, transportation, environment, health, and disaster risk management ) – Access to lines of credit through national development banks 8

Expand local fiscal resources Examples of local economic instruments and policies in key sectors 9 Mitigation Energy, efficiency Trading of emission reduction by energy savings (ETS); reduction of fuel subsidies Energy, renewable Subsidies to clean energies Solid waste Collection charges for solid waste pickup Sustainable transport Road pricing, tax incentives, parking pricing Urban greening Subsidies to green buildings Water User fees for wastewater treatment, metering and pricing to encourage water conservation Waste water User fees for municipal water Land use Zoning for high density, property taxes for energy efficient high density development Adaptation Agriculture Tax incentives, environmental labelling laws Climate resilience Local economic development strategies Disaster risk management Property taxes in most vulnerable areas; relocation through buy out programme Land use and forestry Property taxes in green areas

Increase private investment and PPPs Insurance: – Cover the risks of high-severity, low-frequency events for individuals, public institutions, and private entities (MultiCat for Mexico) PPPs: – Used for public services: public transport, water supply, infrastructure management (highways) Guarantees: – Used to improve investor confidence in cases of risk (Barranquilla, Colombia, $63M, Sociedad Acueducto / IFC credit guarantee of 25%) 10

International finance: main climate funds that benefit urban climate resilient investments FundSizeGoals CDM 11 funds and facilities entrusted with $2.5 billion Evolving mechanism tool that should reactivate regulated carbon markets benefiting urban climate investments. Cities can access CDM funds through the sale of certified emission reductions (CERs) to carbon funds. Climate Investment Funds Clean Technology Fund (CTF): $4.5 billion programmed for 13 investment plans Scaled-up demonstration, deployment, and transfer of low-carbon technologies. Major urban mitigation (transport and energy) investments in Mexico and upcoming in Chile. The Strategic Climate Fund: Pilot Program for Climate Resilience (PPCR) ($1 billion) Urban upstream planning support and city-based investments possible to integrate into national plans now being formulated in agreed pilot countries. Forest Investment Program ($587 million for eight pilot countries) Program to Scale up Renewable Energy for Low Income Countries (SREP, $318 million for six pilot countries). UNFCCC GEF- administered Special Funds Least Developed Countries Fund (LDCF): $223 million Preparation and financing of implementation of National Adaptation Programs of Action to address the most urgent adaptation needs in the least developed countries. Special Climate Change Fund (SCCF): $148 million Adaptation and mitigation projects in all developing countries, with a large emphasis on adaptation. Adaptation Fund $300–600 million by 2012 Support activities that reduce the adverse effects of climate change (pending their applicability to urban settings). 11

International finance (cont.) However, there are barriers for cities to access climate funds (see next presentation) – Most international climate funding will be channelled through national governments – Limited awareness of the funds existence and its components – Long implementation period – Difficulty to comply to monitoring reporting and verification (MRV) – Need of co-financing – Difficulties in project development 12

International finance (cont.) Multilateral and Bilateral Development Banks IADB – Technical cooperation and lending in key urban sectors (transport, WSS, energy, housing) – New Emerging and Sustainable Cities Initiative (ESCI):  Environment / climate change  Urban development  Fiscal sustainability World Bank – Technical assistance (GHG index, Energy efficient cities grants, Eco2 cities pilot audit, probabilistic DR assessments); loans (DR financing, urban environmental policy, CAT-DDO, solid waste management) CAF – Through the Latin American Carbon, Clean and Alternative Energies Program (PLAC+e), CAF contributes to the mitigation of the problems arising from climate change and promotes the use of clean and alternative energies in Latin America.Latin American Carbon, Clean and Alternative Energies Program (PLAC+e) 13

Outline Introduction An integrated approach to urban climate resilient interventions Typology of funding sources available to cities – National sources – Local sources – Private sector – International finance Recommendations 14

Recommendations Integrated approach to urban climate resilient interventions Climate Change Action Plans – Outline general climate resilient development goals – Complemented with other sector planning documents – Combine sources Use Municipal Plans as a strategic and operational instrument to integrate investments and diverse sources of finance 15

Recommendations Finance tends to move toward cities that are better managed and that provide more comprehensive and consistent information to the public Create an enabling financial environment  access to climate finance – Assessment, measurement, reporting, and verification – Regulation, plans, and policies – Fiscal incentives – Inducement prizes and public recognition of corporate responsibility Cities should be recognized as important potential partners and implementers of climate resilient projects in NAPAs and NAMAS 16

Example 1: Sustainable Transport and Air Quality Program (STAQ) (GEF, US$20.8 million): One regional level operation and three country operations (Argentina, Brazil and Mexico) Goals – to reduce greenhouse gas (GHG) emissions growth rates through the promotion of an increase in the patronage of less energy intensive transport modes in cities – to induce policy changes in favour of sustainable transport projects The project includes the following cities: – Cordoba, Posadas, Rosario and Tucuman in Argentina – Ciudad Juarez, Leon, Monterrey and Puebla in Mexico – Belo Horizonte, Curitiba, Sao Pablo in Brasil 17

Example 2. Climate Finance Facility Project: Monterrey II Project on Abatement of Greenhouse Gases in Waste Management Emission reduction purchase agreements (ERPAs) with BENLESA – Reductions in GHG emission from waste disposal in the city of Monterrey – Capturing methane and using it as a fuel for power generation or through flaring Buy 1 million carbon credits generated through a biogas plant in Monterrey, Mexico (CDM - Danish Carbon Fund) 18