Getting Down to Business: Climate Action under the Paris Agreement Ash Sharma Plenary, Latin American Carbon Forum, Mexico City, 19 October 2017

Introduction - the NAMA Facility What the NAMA Facility does Implement NAMA Support Projects (NSP) as the most ambitious part of the NAMA Provide funding for a combination of financial and technical measures selects NSPs in annual bidding round (Calls) Key requirements for project selection Implementation readiness Mitigation potential Transformational change This presentation is based on the experiences of the 4th and previous calls. NAMA Support Project (NSP) Overarching sector-wide NAMA

Latin American NAMA Support Programmes Mexico: Implementation of the New Housing NAMA Mexico: Energy Efficiency in SMEs for a Low-Carbon Economy Mexico: Sugar Mill NAMA Costa Rica: Low-Carbon Coffee NAMA Colombia: Transit-Oriented Development NAMA Guatemala: Efficient Use of Fuel and Alternative Fuels in Rural Communities Colombia: NAMA for the Domestic Refrigeration Sector Peru: Sustainable Urban Transport NAMA Chile: Self-Supply Renewable Energy NAMA Brazil: Resource Efficiency for Beef Supply Chain NAMA

How can public resources resources unlock and de-risk private sector investment in low carbon initiatives?

1. Understand private sector motivations Forward looking businesses are looking at climate smart investments from a bottom line / market opportunity perspective as well as an operational / financial exposure perspective They are not necessarily waiting for political action or signals – for the vast majority, the Paris Agreement is not meaningful Roll-out and funding of NDC programmes has the opportunity to provide an attractive pipeline of private sector investment opportunities – NAMAs and climate programmes in general must address these Private sector is ready to engage with governments to deliver least cost, profitable ways to achieve NDC commitments Footloose companies will look first at the investment climate, property rights and the banking sector, then policies and incentives An example: a conventional development project would finance an on-grid PV power plant thereby contributing to increase the share of renewables in the country’s energy mix. This is climate-wise definitely a good thing to do. It is not however necessarily transformational. A good example for a market transformation is the case of a country’s refrigerator market: The government regulated that within 5 years only refrigerators of a certain high energy-efficiency standard are allowed in the market. In the meantime, the NAMA Facility’s funding helps to offer a financial scheme to motivate people for a quicker shift towards the low carbon option. The example shows that there is a regulation, the regulation is enforced and the transformation is actually taking place.

2. Governments Have an Important role to Play in the Transition Governments should strategically target their limited public funds to de-risk and aggregate investments Concessional public finance, lower interest rates and risk sharing facilities have an important role to play Financial ambition is best evidenced in NAMA by Leveraging of private sector capital, through e.g. investors equity, bank loans, user fees/tariffs; and/or Significant mobilisation of domestic, public sector funding e.g. budgetary allocation A variety of financial instruments are employed in the NF projects to date Additional point to first bullet : Highlight relevance of the NSP in the national sector context i.e. the sector in question commands government attention in terms of mitigation policies, or builds on existing initiatives

Financial mechanisms used in NAMA Facility LATAM Loan guarantee facility Concessional/ subsidised loans Loans innovative Use of remittances Grants (project preparation facility) Grants (results based payments) Grants (subsidies) We turn our attention to financial instruments to be employed in the NAMA Facility funded NSPs. These refer to projects under Calls 1 - 3 Concessional or subsidised loans are most common type of financial instrument employed in the selected NSPs (9 out of 13), followed by loan guarantee facilities (6/13) and various forms of grants Most NSPs foresee a mix of 2 or more instruments Some innovation in use of instruments e.g. end user loans via electricity bills (COL II), use of remittances (GTM), inclusion of microfinance providers (GTM) Many of these are yet to be tested, but the NAMA Facility is committed to disseminate lessons learnt going forward. Grants (direct investment) MEX Housing CL Renewables COL I Transport GTM Biofuels MEX Renewables CR Agriculture PER Transport COL II Refrigeration BR Agriculture MEX E.Efficiency

3. Some lessons learnt on Financial Mechanisms A clear rationale for the selection of the financial instrument(s) should be presented with the outline The financial mechanism should be based on the business model, take into account analysis of (financial) market conditions Institutional arrangements for financial mechanisms are important The phase out concept and sustainability beyond the 5 year frame of the NSP applies also to the financial instruments NAMA proponents have typically looked at short term instruments that can be funded by the NF e.g. interest rate subsidies Better to look at more permanent financing sources to redirect financial flows, e.g. public sector budgets, taxes, guarantees Contribution from private households / industry aids financial sustainability Donor funding to be temporary with clear phase-in, phase-out concept Additional point for second bullet : The mechanism is expected to be functional and operational within the first year of NSP implementation Additional point for third bullet : Existing financial instruments and their coverage of proposed technology/users, banks willingness to finance the proposed technology Additional points for fifth bullet on institutional arrangements : The financial entity must apply fair and transparent selection criteria for allocating financial support e.g. well defined grant criteria It should demonstrate good governance i.e. oversight of the funds and fiduciary responsibility. Transaction costs should be described and be reasonable. Additional comment for final point : How are remaining funds e.g. revolving loan fund or guarantee fund dealt with

For further detailed lessons learnt, view NAMA Facility Webinars Detailed information at www.nama-facility.org Ash Sharma Senior Adviser, Climate Finance ash.sharma@nama-facility.org or contact the Technical Support Unit at contact@nama-facility.org