Module IV.2 Financing adaptation Trainer: [Name]

Overview of this module Tracking climate financing for adaptation Determinants for strategies of financing Potential sources of finances and their relevance for LDC adaptation activities

What can you expect to learn from this session? Get introduced to CPEIR as a tool for tracking climate finance. Understand options and relevance of domestic and international climate financing.

NAP country-level training Tracking existing financing of climate change activities: The Climate Public Expenditures and Institutional Review (CPEIR) Background: Often weak consolidation of climate change activities on a national level (also due to the lack of consolidation of funding streams on international level) CPEIR offers an analysis of allocation and management of public expenditures for climate change. Analysis of current climate expenditures from both domestic (including ‘classification’ of budgets) and external sources of finance. Advantage: CPEIRs have already played an important role in stimulating more comprehensive and inclusive reflections on climate change in the countries applied. Disadvantage: Very work intensive process. 4 step approach: 1. Defining the extent of total public expenditure that was to be analyzed in terms of climate relevance (e.g. the national budget, extra-budgetary funds, international funding). 2. A review of what data sets were available for analysis (e.g. budget estimates versus actual expenditures). 3. This information was then filtered by asking which expenditures were relevant to climate change (‘classification’ along specific benchmarks) and inquiring into the relevance of those expenditures. 4. Subsequent analysis was then carried out to examine a number of different issues (e.g. adaptation/mitigation spend) CPEIR Method has been applied in: Nepal, Bangladesh, Thailand, Cambodia, Samoa, Philippines, Morocco 13/11/2018 NAP country-level training

NAP country-level training What needs to be financed in adaptation? Sector Example activities Enabling activities Supporting the development of climate change adaptation-specific policies, programs and plans Policy and legislation Capacity strengthening of national institutions responsible for adaptation Agriculture Promoting diversified agricultural production to reduce climate risk Energy Strengthening of energy transmission and distribution infrastructure to cope with the expected impacts of climate change Health Strengthening food safety regulations; developing or enhancing monitoring systems Transport Building protection from climate hazards into existing transport infrastructures (e.g. Disaster Risk Reduction measures) Water and sanitation Monitoring and management of hydrological and meteorological data Examples taken from CPEIR Methodological Note. Main purpose of this slide is to demonstrate the broad spectrum of different adaptation measures. They include beside infrastructure investments also measures like policy development, capacity strengthening and monitoring. The trainer should not elaborate on all lines of the chart but highlight the blue buzz words explaining how different adaptation options can look like and, consequently, their financing mechanisms. 13/11/2018 NAP country-level training

UN Multi-Partner Trust Fund (2014). Typical sources for financing adaptation This is the Integrated Model ‚Blended Finance‘ which correlates funding sources and funding mechanisms / channels. Highlight in the presentation how many different sources and financing channels (national budgets, project funds, Trust Funds, capital market etc.) can become relevant. Adaptation financing usually requires ‚hand-tailored‘ solution for each adaptation measure category. This chart illustrates the Blended Finance Model, in which funding mechanisms to finance adaptation to climate change are correlated. These funding mechanisms are either derived from domestic sources or from international sources and are gathered in the National Climate Fund respectively. Domestic sources amongst others originate from ‘Innovative Sources‘, whereas multi/ bilaterals are international sources. The National Climate Fund, which collects both domestic and international sources, accounts for projects, budgets and joint programs. However, there are further domestic and international sources – the blend funding sources – which also contribute to the financing of projects, budgets and joint programs. Domestic blend funding sources are either national budgets or other sources such as the national transition fund. On the international level, there are multi/ bilaterals and vertical funds. The International Climate Initiative (ICI) is a financing tool established by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) in 2008 to support climate related projects in developing and newly industrialised countries. Currently, funds for the ICI are provided by the federal budget and by the Special Energy and Climate Fund, which the entire German revenues from emission trading flow into. The ICI is organised in accordance with the climate-relevant areas mitigation, adaptation and biodiversity. It is perceived to be a contribution to international environmental cooperation, which facilitates climate-related projects in order to complement development cooperation (German Climate Finance, 2015). The Adaptation Fund (AF) has the purpose of financing specific adaptation projects and programmes in developing countries being parties to the Kyoto Protocol and further being vulnerable to the adverse effects of climate change (Adaptation Fund, 2014). The Least Developed Countries Fund (LDCF) was created to respond to the least developed countries’ needs under the Climate Convention. In particular, the LDCF is intended to finance the preparation and implementation of National Adaptation Programs of Action (NAPAs). NAPAs make use of already existing information in order to determine a country’s priorities for adaptation actions (Global Environment Facility, 2013). References: Adaptation Fund (2014). About the Adaptation Fund. Retrieved from https://www.adaptation-fund.org/about German Climate Finance (2015). The International Climate Initiative (ICI). Retrieved from http://www.germanclimatefinance.de/overview-climate-finance/channels-german-climate-finance/the-international-climate-initiative-ici-2/ Global Environment Facility (2013). Least Developed Countries Fund (LDCF). Retrieved from http://www.thegef.org/gef/LDCF UN Multi-Partner Trust Fund (2014). Source: UN-MPTF, 2014

Example Bangladesh: Relevance of funding sources and channels This slide gives closer consideration to funding sources and channels Bangladesh has at its disposal to adapt to climate change. Thus, it applies the more general indications of the previous slide to the case of Bangladesh, which is taken as an example of least developed countries (LDCs). Important to note is that the shares of domestic resources to finance climate change adaptation are three times as high as the foreign ones and thus are more relevant compared to the foreign resources. Bangladesh is a LDC, meaning that it is part of a group of countries identified as economically vulnerable by the United Nations and as belonging to the countries most vulnerable to the adverse effects of climate change by the UN Framework Convention (UNFCCC). As Bangladesh was aware of its own severe vulnerability, it was one of the first LDCs to finalize its National Adaptation Programme of Action (NAPA) in order to respond to climate change in November 2005 and updated it in 2009. The NAPA was financially supported by the UNFCCC’s LDC Fund and adhered to the guidelines of the international community and the UNFCCC’s LDC Expert Group. The NAPA consists of four pillars: food security, energy security, water security and livelihood security. However, Bangladesh’s policy makers considered the NAPA to be inadequate in the aftermath of its completion because it did not respond to the magnitude of the climate change problem the country faces properly (LDC paper series, n.d.). It is against this background that the government of Bangladesh initiated a more comprehensive planning process, making use of its own financial and intellectual resources. The Bangladesh Climate Change Strategy and Action Plan (BCCSAP) was established and presented to the Cabinet of Bangladesh in 2009. The BCCSAP’s vision is the eradication of poverty and the achievement of economic and social wellbeing through a pro-poor climate change strategy. This climate change strategy gives priority to adaptation, disaster risk reduction and further addresses low carbon development, mitigation, technology transfer and provision of funding (Umme, Rehana, 2014). As action was perceived to be urgent, it was initiated with national funds instead of with the financial support from the international community. However, the accruing costs excelled the domestic financial resources, wherefore the government of Bangladesh received assistance and donations from the international community (LDC paper series, n.d.). Consequently, the Parliament enacted the Climate Change Trust Act and established the Climate Change Trust Fund (CCTF) as well as the Bangladesh Climate Change Resilience Fund as a means to respond to climate change. From 2009 to 2013 the government of Bangladesh has allocated US$ 350 million, which were taken from its own resources. Within the framework of the CCTF different government agencies have implemented 207 projects amounting to a financial outlay of US$ 238.9 million. The government of Bangladesh has further affirmed 63 projects of various NGOs and the private sector having a financial outlay of US$ 3.13 million (Umme, Rehana, 2014). Both domestic and foreign resources to finance climate change adaptation contribute to the overall climate budget and flow into the latter via three different streams – the Bangladesh CCTF, the Government of Bangladesh (GoB) Annual Development Plan and Non GoB Delivery Mechanisms (see chart). References: LDC paper series (n.d.). The Bangladesh National Climate Funds. Retrieved from https://ldcclimate.files.wordpress.com/2012/05/bangladeshnationalfund.pdf Umme Rehana (2014). Climate Finance in Bangladesh. 13/11/2018 NAP country-level training

Examples for domestic sources Regular national budget Regular local budget Targeted transfers from national to local budgets National Climate Fund Commercial / concessional loans Private investments Fees/charges Insurance systems Public Private Partnership This slide is a conclusion from the last one: Since domestic funding sources are very relevant, they should be intensively reflected and differentiated according to adaptation measures to be financed.

Multilateral / bilateral funds UNFCCC Green Climate Fund (GCF) Adaptation Fund (AF) Least Developed Countries Fund (LDCF) Special Climate Change Fund (SCCF) Multilateral institutions Pilot Program for Climate Resilience (PPCR) Multilateral development banks (MDBs) Finance institution created by a group of countries MDBs provide financing and professional advice to support development Memberships include developed donor countries and developing borrower countries Project financing in the form of long-term loans at and below-market rates and through grants Bilateral Climate Change Funds: Aid provided from one country directly to another country Supports the economic, social and political development in partner countries Different from short-term humanitarian aid by focusing on alleviating poverty in the long term Usually bi-lateral agreements are negotiated between the two partners Bilateral funds German ICI UK International Climate Fund

Current trends in international / public climate financing This slide and the previous slide show a general overview on international climate financing. Only in case of special interest of the trainees in international financing, the slides 11 – 15 should be presented. In a ‘normal’ training these slides may be hidden. The COP 21 will take place in Paris in December 2015 at which countries intend to decide upon a new global agreement on how to approach climate change. Central to this conference are decisions about how to provide finance in support of developing countries’ low-carbon and climate-resilient development. The Global Landscape of Climate Finance 2014 provides information on finance sustaining climate change mitigation and adaptation outcomes. Development Finance Institutions (DFIs) exist on three different levels , as there are national DFIs, multilateral DFIs and bilateral DFIs. Further two public sources of international climate financing are climate funds and other financing from governments. DFIs remain the cornerstone of public efforts to finance low-carbon and climate-resilient development. National DFIs account for the most significant public source of climate financing, followed by multilateral DFIs and bilateral DFIs. In 2013, DFIs committed USD 126 billion or 38 percent of total climate finance flows – remaining largely stable with 2012 levels. However, adaptation constituted only a small share of climate financing in 2013, as it only amounted to approximately 7.5 percent. DFI = Development Finance Institutions Out of this: adaptation is only a small share (appr. 7.5 %) in 2013 Source: Climate Policy Initiative 2014: The Global Landscape of Climate Finance 2014 13/11/2018

Adaptation Fund (AF) Objective: To support concrete adaptation activities that reduce the adverse effects of climate change facing communities, countries, and sectors Countries eligible: Developing country parties to the Kyoto Protocol particularly vulnerable to the adverse effects of climate change. Access modalities: Direct, regional and multilateral access Project size: Small size (requesting up to $1 million) & Regular size (> $1million) Cap for maximum amount of funding per country at US$ 10 Million Project application process: Throughout the year on a rolling basis Designated Authority (DA)– an officer within the country’s government administration, who is authorized to sign on behalf of the country and communicated with the AF Secretariat. The DA is an individual, not an institution, and is appointed by a minister or ambassador. The DA’s principal role is to verify and affirm that the proposal is consistent with national adaptation priorities. National Implementing Entities (NIE) – for direct access only, national institutions accredited by the Adaptation Fund Board to receive direct financial transfers from the Fund in order to carry out adaptation projects and programmes. For accreditation need to comply with the financial integrity, institutional capacity, transparency and self-investigative powers criteria. Only in case of special interest of the trainees in international financing, the slides 11 – 15 should be presented. In a ‘normal’ training these slides may be hidden. Source: Adaptation Fund Operational Policies and Guidelines https://www.adaptation-fund.org/

Pilot Programmes for Climate Resilience (PPCR) The largest international source for adaptation finance Objective: To provide programmatic finance for climate resilient national development plans Countries eligible: Priority to highly vulnerable least developed countries Access modalities: Multilateral Development Bank (MDB) Focal Points (AfDB, ADB, EBRD, IDB, IFC, WB) Actions supported: e.g.: Building climate-resilient agricultural practices, water supply, monitoring and analyzing weather/ climate data – support should build on existing NAPAs Instruments: Grants and concessional finance Only in case of special interest of the trainees in international financing, the slides 11 – 15 should be presented. In a ‘normal’ training these slides may be hidden. 13/11/2018 NAP country-level training

Least Developed Countries Fund (LDCF) Countries eligible: Least Developed Countries (LDCs) Actions supported: Preparation and implementation of National Adaptation Programs of Action (NAPAs) by least developed countries (LDCs) Preparation of the National Adaptation Plan (NAP) process Project size: Full-sized Projects (> $2m) Medium-sized Projects (< $2m) Instruments: Grants Institutions involved: GEF Operational focal point GEF Agencies GEF Operational focal point – endorses project proposals to affirm that they are consistent with national plans and priorities and facilitates GEF coordination GEF Agencies – endorse project proposal and support project proponent in its development and implementation Only in case of special interest of the trainees in international financing, the slides 11 – 15 should be presented. In a ‘normal’ training these slides may be hidden. 13/11/2018 NAP country-level training

Special Climate Change Fund (SCCF) Countries eligible: All non-Annex 1 countries; Priority to the most vulnerable countries in Africa, Asia, and the Small Island Developing States (SIDS) Actions supported: Adaptation (SCCF-A) including preparation activities for the National Adaptation Plan (NAP) process Transfer of technologies (SCCF-B) Project size: Full-sized Projects (> $1m) Medium-sized Projects (< $1m) Instruments: Grants Institutions involved: Similar process as for LDCF Only in case of special interest of the trainees in international financing, the slides 11 – 15 should be presented. In a ‘normal’ training these slides may be hidden. 13/11/2018 NAP country-level training

Green Climate Fund (GCF) Countries eligible: Developing countries Actions supported: Mitigation (50%) and Adaptation (50%) including supporting developing countries in pursuing project-based and programmatic approaches, such as NAPs. a floor of 50% of the adaptation allocation for particularly vulnerable countries, including least developed countries (LDCs), small island developed States (SIDS) and African States Access modalities: Direct, Regional and International access Specialty: Expected to become the main global fund for climate finance – first project financing foreseen in 2015 Only in case of special interest of the trainees in international financing, the slides 11 – 15 should be presented. In a ‘normal’ training these slides may be hidden. 13/11/2018 Source: (GCF/B.06/07, p.4) http://www.gcfund.org/ NAP country-level training

NAP country-level training Case Work Analysis of 3 cases of relevance to the country of application in respect to: Classificiation of adaptation options along CPEIR methodology Identification of potential financing sources. Sensitivity Analysis is a process where the analysts makes different assumptions in the CBA (such as different percentage of climate change damage) to show robustness of the criteria to those different assumptions. 13/11/2018 NAP country-level training

Imprint Published by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Climate Policy Support Project Dag-Hammarskjöld-Weg 1-5 65760 Eschborn, Germany T +49 61 96 79-0 F +49 61 96 79-1115 Contact E climate@giz.de I www.giz.de/climate Responsible Till Below and Nele Bünner, GIZ Authors Alfred Eberhardt This presentation is part of a NAP country-level training that has been developed by GIZ on behalf of BMZ and in cooperation with the NAP Global Support Programme (NAP-GSP), in particular UNDP and UNITAR. The training is designed to support countries in setting up a National Adaptation Plan (NAP) process. It builds on the NAP Technical Guidelines developed by the Least- Developed Countries Expert Group (LEG). You are welcome to use the slides, as long as you do not alter its content or design (including the logos), nor this imprint. If you have any questions regarding the training, please contact Till Below or Nele Bünner at GIZ. For questions related to the Technical Guidelines, please refer to the UNFCCC’s NAP Support Portal. As a federally owned enterprise, the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH supports the German Government in achieving its objectives in the field of international cooperation for sustainable development. GIZ also engages in human resource development, advanced training and dialogue.