Climate Change and National Budgets A relationship that matters Engaging with Ministries of Finance Particularly in relation to the budget Kevork Baboyan Governance and PFM Specialist

Why do we care about the Budget? Public expenditures represent on average 30 percent of GDP in Emerging Asia (source: IMF). Ensuring that these public investments and services contribute of national climate change mitigation and adaptation objectives and international commitment under the Paris Agreement is crucial. International Climate Change Public Finance while important will not be sufficient. (“Fight for It but Do not Depend on It”!) The fiscal and subsidy policies embedded in the budget are crucial to incentivize private behavior and leverage private sector investments.

Main Diagnostic: A Deep Disconnect Between CC Policy Framework and Budgets CC Planning Landscape in last 15 Years Medium Term& Annual Budgeting Processes CC Strategic Plans (CCSPs) CC Strategic Action Plans (CCSAPs) National CC Action Plans (NCCAPs) National Adaptation Plan for Actions (NAPAs) National Adaptation Plans (NAPs) Nationally Determined Contributionss Medium Fiscal Framework (MFF) Medium Term Budget Framework (MTBF) Medium Term Expenditure Framework (MTEF) Annual Budget

Reconnecting the Plan and the Budget: Start to Identify and the Climate Spend in the Budget versus the National CC Action Plan -Involving the Ministry of Finance -Developing Methodologies to define climate change finance that made sense in the national context -Design a typology to classify budget allocation and expenditures -Come up with a CC relevance weighting system for budget expenditures -Integrate this identification system in the budget process and FMIS -Publish Climate Budget Reports

Monitoring the progress in the implementation of the NCCAP through the national budget: Ex. Of Bangladesh Integration in FMIS. Measurement as part of the Budget Process Climate Budget Report Present to Parliament

Assessing Climate Spending Allocation Pattern Alignment with the NCCAP Assessing Climate Spending Allocation Pattern Alignment with the NCCAP. Ex: Cambodia In Cambodia, in 2016, 92 percent of what should have been allocated for climate change was allocated at aggregate level. However, there were disparities between the needs as identified in the CCSPs and the actual allocations. Need vs Allocation Patterns. Integrating Budget and ODA date Third Edition of the Climate Budget Report Source: Ministry of Economy and Finance, CPER 2018

Assess the Credibility of Budgeted Climate Change Programs Help them assess “the rate of absorption” of climate change spending. Example from Indonesia: Absorption Rate in Indonesia in 2016 (in trillion IDR) Integration in FMIS. Measurement as part of the Budget Process Both allocation and expenditure tagged. Minisry Ceiling Realization Budget Absorption Ministry of Environment and Forestry 1.62 1.13 70% Ministry of Agriculture 4.27 3.15 74% Ministry of Energy and Mineral Resources 2.17 1.54 71% Ministry of Transportation 21.00 10.83 52% Ministry of Industry 0.05 0.03 65% Ministry of Public Works and Housing 43.23 35.72 83% Total 72.35 52.41 72% Source: Analysis Report on Climate Mitigation Budget, MoF

Reconnecting the Plan and the Budget: Connecting the Sectoral Planning and the Budget in line with the NCCAP Sectoral Ministries Ministry of Economy and Finance Climate Change Policy Making Body National Planning Agencies Long Term and Medium Term National Development Strategy National CC Action Plan/NDCs Sectoral Medium and Annual Term Planning and Budgeting Medium Term Fiscal Framework/Annual Budgets Dynamic System Consistency Information flows Feedback Loops We connected NCCAP and the Budget. (Supply-side connection) Shift to a more comprehensive approach and start building the demand side connections. Two connections: CC Policy and Planning and Sectoral Policy and Planning CC Responsive Sectoral Planning and Programming and the Budget

5/4/2019 Planning Appraisal Guidelines, Planning Templates, Budget Circulars, Review budget and lead technical hearings, Approve budget submissions and allocate funding Prepare feasibility studies, Appraise and design projects, Submit planning documents and budgets Defend and argue case for budget submissions in hearings Central Agencies: Planning Finance Plan-Budget Connection Processes and Instruments in need of Reform to achieve the NCCAP Budget Formulation and Negotiation Process Focus on sector side Sector Ministries: Infrastructure Social

With support of Technical Agencies: 5/4/2019 Central Agencies request ministries integrate CC impact in design of investments and submit budgets accordingly. Provide guidance to help ministries integrate CC and allocation decision take CC factor into account Central Agencies: Planning Finance With support of Technical Agencies: Ministry of CC Met Office NSO Implementing the CC Mainstreaming Actions Budget Formulation and Negotiation Process Design projects that are CC responsive using central guidance Submit planning templates and budgets that illustrate contribution to CC Make the case for CC benefits accrued Working with CSOs, Parliamentarians, and Media Accountability and transparency for: Reform Pro-poor results More effective management and delivery of climate finance Sector Ministries: Infrastructure Social

Incorporating Climate Change Risks into Planning and Budget Formulation On Sector Ministries Side: Step 1: Screening relevant PIPs using selection criteria (amount of project, location, relative size to the ministry portfolio, impact on vulnerable population, expert judgement…) for CC appraisal Step 2: Analyze risks to and from the project using a various instruments: CC scenarios, CV assessment, CC adjusted cost-benefit-analysis, Multi-criteria analysis, any other Instruments for risk informed planning etc. Step 3: Adjust the design of PIP and budget submission as per findings of CC analysis and in particular costs and benefits arising from CC impact. Highlight any need for climate proofing. On Central and Technical Agencies Side: Step 1: Develop a common framework to appraise PIPs for climate change systematically across sectors. Step 2: Adopt the framework formally and integrate it to the planning and or/budgeting circulars. Cambodia Thailand Training and CBA support to integrate into budget proposals Negotiations over the budget: MPWT in Cambodia Caribbean example Step 4: Develop a common framework to appraise PIPs for climate change systematically across sectors. Step 5: Adopt the framework formally and integrate it to the planning and or/budgeting circulars.

CC Risk informed Public Investments Country Ministries Amount (USD Million) Percentage of Ministry Budget Objective Fiji Ministry of Rural and Maritime Development 3.4 17 Risk-Informing Development Projects Pakistan Ministry of Water Resources 241 38 Climate-resilient water infrastructure Nepal Ministry of Agriculture and Livestock Development 10.2 4 Stronger Integration of Climate Into the Programs Tonga Ministry of Agriculture Fisheries and Forestry 0.7 10 CC Risk informed Public Investments

Climate Change Financing Framework: A Whole of Government Approach to heal the Plan-Budget Disconnect on CC We looked at SS side and demand side. This brings us to a framework that brings all these elements together. CC Responsive: Macroeconomic Framework Project Appraisal Guidelines Sector Work Plans Budget Circular Budget Submissions Budget Negotiations Budget Allocations Budget Hearings Budget Policy Statement and Enactment Green and Climate Change Compatible Procurement Law and Guidelines Climate change tags and weights in budget and accounting systems (FMIS…) Progress reports versus CC Plans, Climate change expenditure reports CC Performance Audits

What is the CC Financing/Fiscal Framework medication doing? A framework to reconcile the planning and financing aspects of climate change. How? Involves All the Big Players: National Planner, CC Policy Maker, the Treasurer and the sector policy implementers around the same CC objectives. Identifies the strategic entry points for each player as per their responsibilities as well as the interconnections. Identifies the CC mainstreaming actions that should be undertaken taken throughout the policy, planning and budgeting cycles and how these are interlinked and should come together. Quantifies the CC financing needs, the financing supply, the gap and proposed measures to fill it.

Climate Change Financing Frameworks

Assessing the financing gap for NDCs.

Filling the Gap… Helps them assess the financing gap for NDCs and initiate a Climate Policy Road Map on how to fill it. Mobilize International Climate Finance: India Indonesia China Vietnam Bangladesh Issue Green Bonds/Sukuks for USD1.25billion Indonesia (2018) Ecological Taxation Fiji (2015), Colombia (2018) India Indonesia China Vietnam Bangladesh

Towards a Steer for a Comprehensive National Climate Finance Policy Helps them assess the financing gap for NDCs and initiate a Climate Policy Road Map on how to fill it. What role could private sector play in adaptation? Insurance? Including Micro-finance? Fiscal incentives? Green Banking with Central Bank: lower fees, discount rates, guarantees. Review and Remove Fossil Fuel Subsidies? Negative Agric Subsidies? India Indonesia China Vietnam Bangladesh

Thank You! Biofin Lecb GEF GCF?

CCSP CCSAP NCCAP NAPAs NDCs Main Diagnostic. A Deep Disconnect Between CC Policies, Sector Plans and Budgets CC Planning Landscape Medium Term National Development & Sectoral Panning Medium Term& Annual Budgeting Processes CCSP CCSAP NCCAP NAPAs NDCs NDS Agric/Water Energy Forestry PW/Transport Rural Dvpt Macroeconomic Framework Fiscal Framework Budget Framework Annual Budget