Nationally Appropriate Mitigtion Action - and how to finance it... Dr. Søren E. lütken

Locally Appropriate Mitigtion Action ('LAMA') - and how to finance it...

'Reducing emissions is expensive...' A price on CO 2...? no evidence for cost efficient emissions reduction align with other priorities emissions reduction as a co-benefit accepted in NAMAs – sort of... – it should equally be accepted in 'LAMAs'

In essence, therefore, the focus is the financing of anything with an emissions reduction option – or even without... Climate finance is not a new kind of financing – it is the acceptance that old financing principles are just as valid for emissions reduction as for anything else and that is hard to sell... Financial engineering will not make the extra cost disappear – but it may bolster the will to entertain it...If there is any extra cost at all...

The Marginal Abatement Revenue

Financial engineering is not about listing a number of cost items in order to arrive at a (large) amount for which a request for grant financing can be submitted It is about reducing that cost – if any – to a minimum That is particularly true for cities that have limited choice of financing options – because they do not have a treasury to back them

there are limits to climate finance... current cost future cost bridge finance charge for service Here bridge finance is short term 'climate finance'' – possibly a grant

charge for service current cost future cost cross subsidy

financial engineering current cost future cost bridge finance cross subsidy financial engineering

TRANSFORMATIONAL change PERMANENCE ASSET is a starting point, but … OPERATION is the real transformation Hence, recurrent spending is more important than asset financing!

Defining NAMA finance NAMA/'LAMA' finance is the finance that must be engineered in order to allow the private sector and its banking partners to do its business as usual (or as it usually does business) Banks

Leveraging Public Municipal Public International Private National Private International Public national

OPERATIONAL Environmental Fiscal Reform

Cities' financial shortcomings The Cities Climate Finance Leadership Alliance ( 2014) identifies a number of reasons for an investment gap in cities: Institutional and regulatory constraints limiting access to certain sources of finance; Inadequate levels of municipal credit-worthiness, which limit access to low-cost capital; The relatively small scale of many needed investments; and thus high transaction costs; Shortage of capacity at city-level to formulate projects with adequate business plans; Most cities fall short on collateral which influences access to loans guaranties But for cities wishing to achieve 'transformational changes' EFR is probably easier to practice locally, although the number of 'levers' that can be adjusted may be less

The WRI, C40 Cities and ICLEI – Local Governments for Sustainability, developed a programme called the Global Protocol for Community-Scale Greenhouse Gas Emission Inventories (GPC). The developers say the framework helps establish credible emissions accounting and reporting practices, and will aid cities to develop an emissions baseline, improving access to local and international climate financing – let's hope… Many emissions reduction options are profitable and only require a regulator to facilitate that profits accrue where investments are made (rectifying split incentives) Retaining part of such profits with the public sector allows cross-subsidization in support of unprofitable reduction options

Meanwhile, some cities may be able to support issuance of green bonds for transitional finance of larger Environmental Fiscal Reforms Few may be able to set up smaller guarantee schemes for (local) private operators (large opportunity for the GCF to step in) They may take equity stakes in private service suppliers or otherwise provide comfort to private operators They may seek partnerships with other cities to form larger entities that may access national or international finance (GIZ: V-NAMAs)

financial engineering current cost future cost bridge finance cross subsidy Fiinancial engineering

OPERATIONAL Environmental Fiscal Reform

Thank you