Financing Adaptation in the Water Sector Water and Climate Change Adaptation Workshop Sandra Valencia Sustainable Energy & Climate Change Unit March 22nd, 2011 Port of Spain, Trinidad and Tobago

Investments and financial flows needed for adaptation Sector Costs for developing countries (US$bn per annum by 2030) Agriculture 7 Water 9 Human Health 5 Coastal Zones 4 Infrastructure 2-41 TOTAL 27-66 Globally: Several tens of billion $ per year will be required for adaptation (estimates between 40 to 170 billion $ globally by 2030)* Amounts are large in absolute terms, but small relative to global GDP and investment Existing climate change funds would need to be enhanced at a greater scale Creating a safe future with climate change will require: Shifts in investment patterns, Scaling up funding, Optimizing the allocation of existing funds. *Source: UNFCCC, Assessing the costs of adaptation to climate change; a review of the UNFCC and other recent estimates, 2009

Difficulties and limitations in estimating the exact costs of adaptation Differences in adaptive capacity between countries Most adaptation measures must be implemented not only in the context of climate change Uncertainties associated with the methods used to calculate costs of adaptation The existence of an adaptation “deficit ”

Funding for adaptation for developing countries UNFCCC Funds: GEF: Enabling activities: adaptation in the context of national communications SPA (funding as part of the GEF trust fund - projects shall have global benefit Special Funds under the Convention: SCCF LDCF Adaptation Fund under the KP Green Climate Fund Multilateral Funds: Climate Investment Funds, MDBs (example of SECCI at IDB), etc. Bilateral Funds Other UN Conventions Wetlands – Ramsar Convention- Wetlands for the Future Fund a Small Grants Fund for Wetland Conservation and Wise Use Risk transfer Mechanisms Decisions tend to identify SIDS, LDCs and Africa as most vulnerable and priority countries for finance

Special Climate Change Fund (SCCF) Eligibility and framework to allocate funds Governance Support services Implementation Source and levels of funds All developing countries that are Party to the Convention SCCF priority is adaptation planning and measures in climate-sensitive sectors. Co-financing required Council under the GEF GEF secretariat / GEF implementing and executing agencies Through GEF framework – implementing agencies Voluntary contributions by donors About $ 100 million pledged

Least Developed Country Fund (LDCF) Eligibility and framework to allocate funds Governance Support services Implementation Source and levels of funds Under LDCF, LDCs receive support for the preparation of NAPAs as a framework for further funding of immediate needs Prioritizes “urgent and immediate” adaptation needs Supports priority NAPA activity implementation. Council under the GEF GEF secretariat GEF implementing and executing agencies Through GEF framework – implementing agencies Voluntary contributions by donors About $200 million pledged

SCCF and LDCF – Lessons learned Experience in designing climate change projects in relation to the development baseline. Delivering funding through the GEF-managed SCCF and LDCF has been challenging, but has resulted in enhanced national capacity to identify climate change risks and develop projects that complement baseline development activities. Linking climate change risks with development challenges requires experience that is often limited. Climate change risks must be translated into the context and language of existing management challenges to have greatest resonance with stakeholders.

SCCF and LDCF - Lessons learned Project proponents draw heavily on existing climate change assessments such as NAPAs and NCs for developing adaptation projects and initiatives, but there are limitations to their usefulness. A critical role for development agencies lies in establishing relationships and brokering consultations among actors in climate risk management that may not be familiar collaborators. Stakeholder-determined adaptation responses are not always the most appropriate middle- to longer-term adaptation strategies. Existing adaptation deficits and maladaptation to climate risks pose major hurdles to managing climate change risks – there is a clear need for integrated approaches, and for government agencies to work collaboratively on development challenges linked by climate.

Adaptation Fund Eligibility and framework to allocate funds Governance Support services Implementation Source and levels of funds All developing countries that are Party to the Kyoto Protocol Concrete adaptation projects or programs Allocation of resources take into account: Level of vulnerability Level of urgency and risks arising from delay Ensuring access to the fund in a balanced and equitable manner Lessons learned in project and program design and implementation to be captured Securing regional co-benefits to the extent possible, where applicable Maximizing multi-sectoral or cross-sectoral benefits Adaptive capacity to adverse effects of climate change Adaptation Fund Board GEF secretariat World Bank as trustee Through “Accredited executing agencies” “Direct access” to National Implementing Entities (NIE) 2 % share of proceeds of CDM Voluntary contributions by donors Depending on quantity and price of CERs (until 2012). Assumingly $ 80−300 million per year

Fast-start 2010-2012 US$ 30 billion/ year Criteria Balanced funding between adaptation and mitigation EU member states & EU Commission: EUR 2.2 billion mobilized towards its 2010 New Countries such as UK & USA counting previous commitments to CIF Additional Funds should be additional to development aid Disbursement through international institutions - pledges are clear, their delivery is uncertain - CIFs and GEF are the primary multilateral institutions of choice Most vulnerable developing countries prioritized least developed countries, small island developing States and Africa It is not clear that developed countries’ fast-start finance contributions fulfill these criteria http://www.faststartfinance.org/ Source: WRI

Green Climate Fund Decision from Cancun Negotiations 2010 Transition Committee The GCF In charge of developing the operational documents and making recommendations to the COP in Durban Fund Board: equal representation of developed and developing countries 25 developing countries and 15 developed countries Fund Board: 24-member board - who will be part of the board? Tasks: Legal and institutional arrangements Fund Board Rules of Procedure Financial instruments, funding windows and access modalities Complementarity with other funds and institutions Role of secretariat Independent performance evaluation Standards, safeguards and accountability Expert and technical advice mechanisms Stakeholder input and participation Capacity to provide “direct access” to national institutions, without the intervention of international implementing agencies Trustee with competence to administer the fund and adhere to fiduciary standards: WB invited to serve as interim Trustee subject to review after three years A Standing Committee has also been established to ensure the Fund does not sit empty, by assisting the COP in mobilizing financial resources and measuring, reporting and verifying their delivery Decision from Cancun Negotiations 2010

Possible Sources of Funding for GCF Source: Report of the Secretary-General’s High-level Advisory Group on Climate Change Financing, 2010.

CIF: Structure of the Funds Climate Investment Funds (US$ 6.1 Billion) Clean Technology Fund (CTF) (US 5.1 Billion) Objective: To promote investment in clean energies Strategic Climate Fund (SCF) (US 1.0 Billion) Objective: to support targeted programs aimed at providing financing to pilot new approaches at a specific climate change challenge or sectoral response. Pilot Program for Climate Resilience (PPCR) Forest Investment Program (FIP) Program for scaling-up renewable energy in low income countries (SREP)

St. Vincent & Grenadines program PPCR – Caribbean Pilot Activities will proceed along two tracks: Country-based investments in highly vulnerable countries: Haiti, Jamaica and four small island states from the Organization of Eastern Caribbean States (Dominica, St. Lucia, St. Vincent and the Grenadines, and Grenada) Region-wide activities: focused on climate monitoring, institutional strengthening, capacity building and knowledge sharing Implementation of a regional PPCR pilot should be characterized by: Participating countries should share a similar range of climate risks Enable pilot activities to focus on building responses to climate threats of high relevance to region & countries Build on existing collaboration on climate sensitive development issues and/or regional programs Type of regional activities likely to depend on degree of ongoing regional collaboration, capacities, and degree of regional political support of an existing regional institution Jamaica program Haiti program Regional program Dominica program St. Lucia program St. Vincent & Grenadines program Grenada program

Bank Response and Lessons Learned SECCI: An effective initiative to identify opportunities and channel assistance for climate mitigation and adaptation activities Has evolved into a critical tool for: Mainstreaming CC into Bank activities Developing innovation and policy instruments Scaling-up financing for public and private sector investments Need to articulate better the SECCI support to Bank’s country programming and investment instruments, and improve cross-sectoral coordination

Case study: Peru- Olmos Project IDB-NCAR Partnership Olmos project: The project aims to promote regional agricultural activity through the development of cultivable lands in the Olmos Region (Northwest Peru), by diverting water from the Huancabamba river through a tunnel across the Andes IDB’s support: Assess the potential impacts of CC and climate variability on the Olmos project and provide the government with decision support systems to manage the project under climate uncertainties Main activities: Development of novel climate scenarios developed through dynamical downscaling using the WRF model, coupled to the land surface model PARFLOW-Noah Results from climate scenarios will be used to develop a water resource planning model of the Olmos project –looking both at supply and demand in an integrated decision support planning process Training to technical staff of local govt on a water evaluation and planning tool Project Diagram Mention: IDB-NCAR partnership (MOU and retainer contract) NCAR= National Center for Atmospheric Research, based in Colorado WRF: Weather Research and Forecasting Model (NCAR’s regional model) WEAP: Water Evaluation and Planning tool (developed by Stockholm Environment Institute and David Yates of NCAR) Study is currently being developed by NCAR

AquaFund Fund for innovative solutions in water and sanitation Facilitates investment in: water supply and sanitation water resources management solid waste management wastewater treatment Contributes to make these services sustainable and accessible to the poor Goal: Finance 100 cities and 3000 communities by 2011 Who is eligible to receive AquaFund grants? National, sub-national, and local government entities, water and sanitation service providers (public, private, mixed-capital, cooperatives), and academic and research institutions are eligible. NGOs may be eligible at the request of governments. Provides grants that contribute to the achievement of the water-related Millennium Development Goals and the targets established under the IDB’s Water and Sanitation Initiative. 60M (45 del Banco y 15 de donantes de afuera) se han aprobado del 20009 a hoy 24 M The fund also assists IDB client countries in coping with the emerging challenges of climate change, the rapid degradation of freshwater ecosystems, and mounting water insecurity.

Sources of investment and financial flows Private sources of funding can be expected to cover a portion of the adaptation costs in several sectors. In particular in the Infrastructure sector where investment in privately own physical assets would be needed. However, public resources are expected to play a predominant role in all adaptation sectors. National measures will be needed to encourage/support private sector adaptation and additional sources of funding dedicated to adaptation will be needed.

THANK YOU! www.iadb.org/secci Sandra Valencia, svalencia@iadb.org