METHODOLOGY FOR ASSESSING INVESTMENT AND FINANCIAL FLOWS TO ADDRESS CLIMATE CHANGE IN ST. LUCIA Grupo del PNUD sobre Medio Ambiente y Desarrollo

INTRODUCTION

Day 1  Introduction and project context  Benefits of doing an I&FF Assessment  General methodology Day 2  Sectoral working groups Day 3  Reporting  Elaboration of workplan Agenda

 Train national teams in the use of UNDP Methodology for Assessing I&FF to address Climate Change.  Define final Workplan (outputs and timeframe). EXPECTED LOCAL BENEFITS:  Incorporate new Government areas into Climate Change analysis.  Develop local capabilities to identify key issues. Training Objectives INTRODUCTION

PROJECT CONTEXT

Why consider Climate Change in development planning  Climate change impacts different sectors, cross-cutting  If not addressed in long-term action, climate change costs will be high Countries may want to position themselves  To ensure that the negotiation outcomes are coherent with national interests & priorities  To be able to participate in the mechanisms that will be created Why consider Climate Change in planning

Bali Road Map Focus on 4 building blocks:  Mitigation  Adaptation  Technology development & transfer  Financial resources and investment Context of climate change negotiations

What is Adaptation?  Closely linked to development  Will require adjustments across every aspect of society, environment & economy  Linked to economic development, poverty alleviation, disaster risk management  Requires capacity for short- & long-term planning Adaptation & Mitigation Process of sustainable & permanent adjustment to changing circumstances

What is Mitigation?  Bali Action Plan suggests nationally appropriate mitigation actions by developing country Parties in the context of sustainable development, supported and enabled by technology, financing and capacity- building, in a Measurable, Reportable and Verifiable manner (MRV)  International agreement will be major challenge Adaptation & Mitigation “An anthropogenic intervention to reduce the sources or enhance the sinks of greenhouse gases.” (IPCC, 2009)

Bali Road Map – Important outcomes  Actions to address climate change are linked to economic growth & sustainable development goals  Shared understanding for the necessity of common efforts, by all countries  Deadline for negotiations by 2009  New mechanisms & new demands to countries Context of climate change negotiations

Key messages of negotiations  Importance to show flexibility to support any new agreement & new financial architecture  Focus on national capacities for  Broader participation of various decision makers  Longer term planning  Implementing broader programmatic approaches  Understanding the finance & technology opportunities Context of climate change negotiations

Importance of planning tools  To identify national priorities  To facilitate cooperation among different ministries  To build strategies to deal with climate change  To create a coherent base of information of climate change impacts on and opportunities in key sectors The project tries to address these points Project context

Why an I&FF assessment An assessment of I&FF is important to  Understand the magnitude & intensity of efforts needed nationally to address climate change in key sectors  Facilitate the integration of climate issues into national development & economic planning  Expand the information & knowledge base  Contribute to the elaboration of negotiating positions for international climate negotiations

PROJECT STAGES & SUPPORT

Goals  Development of national policy options to address climate change in key sectors  Increased capacity to co-ordinate negotiating positions at national level & participate in the UNFCCC process Outcomes  National awareness raised  Investment & financial flows assessed for key sectors  Web-based knowledge platform populated Project goals & outcomes

Sequencing of national activities Pre-workshop preparation (2 months) National workshop on Bali Action Plan, national issues Assessment of I&F flows to address CC mitigation/adaptation options for up to 3 key economic sectors (6-8 months) National workshop to present results, policy options Key line ministries engaged Key sectors identified National issues papers prepared National workshop on: Bali Action Plan Adaptation, mitigation, technology transfer, financing + LULUCF Key sectors UNDP methodology on assessing I&F flows Backstopping from regional centres of excellence Update on Bali Action Plan negotiations I&F flows assessments presented Post-2012 preparation Preparation stageImplementation stageReporting stage

Define & agree  National objectives/goals  Key sectors/scope  I&FF team  Capacities/needs: methods, information…  Institutional arrangements  On workplan/budget  Available scenarios Preparation stage (1- 2 months)

Conduct I&FF assessment in key sectors selected by the country using the UNDP I&FF methodology and the sector specific guidance & reporting guidelines Guidance & procedures for  Documentation & archiving  Spreadsheet management  Quality control & quality assurance procedures Implementation stage (5 – 6 months)

 Ongoing activity, not starting at the end of the assessment  Define outcome (decision making tool, policy tool), target group (internal/external) to draft report  Ensure good drafter for preparation of report(s)  Purpose: documentation of steps and processes for interpretation of outcomes & for later follow-up work Reporting stage

Support to the 3 stages of the project  Work plan guidance  Methodological guidance  Reporting guidance Regional Centres of Excellence  Training on assessment of I&FF  20 days of technical backstopping incl.  Review of workplan, draft and final assessments  Guidance on scenarios, data, approach Guidance available + support provided

Knowledge platform Public space  Database of documents on climate change  Information on the project  Dynamic: Users can upload resources; results and updates “pushed” to site visitors Member space  Faciliate sharing of experiences in groups (country groups, thematic groups)  Private access for national project activities

Checklist Country checklist  Sectors selected Major information background  Draft work plan Key deadlines? Roles?  Team In place? All recommended persons/groups in?  Institutional arrangements in place To share data To collaborate

Team composition

I&FF ASSESSMENT: MAIN CONCEPTS

I&FF: Monetary flows needed to implement policy options in key sectors from the national perspective.  Investment Flow (IF): capital cost of a new physical asset (buildings, equipment, software, etc.) with life of more than one year.  Financial Flow (FF): expenditure not related to the purchase of physical assets (typically programmatic expenditures, e.g. vaccination campaign).  Operation & Maintenance Costs (O&M): are estimated for physical assets (salaries, raw materials, taxes, insurance, etc.) What are Investment and Financial Flows?

I&FF: Example Sector / Approach Adaptation/Mitigation Measures Investment Flows (FI) Financial Flows (FF) Operation and maintenance Costs (O&M) ENERGY (MITIGATION) Increased energy efficiency Energy saving appliances Training programmes for auditors / Information campaigns O&M of new appliances Wind farmWindmills O&M of windmills WATER (ADAPTATION) Water conservation Information campaigns Rainwater harvesting Storage mediums (tanks, jars, etc.) Information campaigns O&M of storage mediums COASTAL ZONES (ADAPTATION) Monitoring of infrastructure New monitoring equipment Monitoring campaigns O&M of new equipment Raising dock levels Construction costs O&M of new infrastructure

Who invests? Who finances? Entities and sources Investment EntitySource of funds HOUSEHOLDSDomesticEquity and debt CORPORATIONS Domestic Domestic equity Domestic borrowing Foreign FDI Foreign loans Foreign Aid GOVERNMENT Domestic Domestic funds (budgetary) Foreign Foreign loans Foreign Aid

An internally consistent and plausible characterization of future conditions over a specified time period ( ).  Baseline Scenario: reflects business-as-usual conditions. Describes what can occur without new policies to address climate change.  Mitigation Scenario: incorporates measures to mitigate GHG emissions.  Adaptation Scenario: incorporates new measures to respond to the potential impacts of climate change. Note: Only one climate and socio-demographic scenario is considered. The only difference between M/A and BL scenarios is that the former consider new measures to tackle CC. What is a scenario?

Example - Water Sector Baseline Scenario: provide water to a growing population extracting it from an aquifer (usual practice in the last years). Adaptation Scenario: Climate Change will reduce aquifer refill, so it is decided to build a dam. The additional investment flows will be the costs of building the dam (versus the investment needed to keep on extracting water from the aquifer) Scenarios and policies - Example

Expected product Year Additional Annual Sectoral Investments (million 2005 US$) ADAPTATIONMITIGATION WaterCoastal ZonesEnergy ∆FI∆FF∆FI∆FF∆FI∆FF … 2030 Total

I&FF METHODOLOGY STEP BY STEP

1. For each sector, evaluate investments and financial flows for two policy scenarios:  Baseline Scenario  Adaptation/Mitigation Scenario 2. Estimate the additional flows needed to implement new adaptation/mitigation measures (difference between flows in both scenarios). Methodology: General Vision

Methodology helps define/identify…  What are IF, FF and O&M costs.  Procedures to avoid double counting, compute additional I&FF and present results.  Preferrable information sources.  Additional I&FF needs for key measures in key sectors (no inventory). National teams should identify themselves…  Key mitigation/adaptation measures from a national perspective.  Key trends/policies to consider in each scenario.  Analytical approach.  How to define sector scope and how to define boundaries if sector overlaps arise.  What policies are needed to implement CC policies. METHODOLOGY What guidance does it provide?

Steps to conduct sectoral I&FF Assessment METHODOLOGY

Step 1: Establish key parameters of the Assessment

The team should decide:  Sector scope (activities, geographical areas, etc.) and overlaps avoidance  Analysis period  Key mitigation/adaptation measures (preliminary list)  Analitical approach for defining future scenarios 1. Establish key parameters of assessment

Define sector scope - Analize overlaps WATER BIODIVERSITY TOURISM FORESTRY ENERGY AGRICULTURE Lake overflow Glaciers Electricity Oil and gas REDD Stockbreeding Coastal zones Water pollution Mangroves Biofuels Transport Hydraulic Energy 1. Establish key parameters of assessment

 Preliminary measures were identified in National Issues Papers and discussed in the Interministerial Dialogue.  Now measures need to be:  Prioritized (according to national criteria)  Made quantifiable (“How much does it cost to implement it?”)  Benefits of the measures need to be identified qualitatively (t he assessment is not a cost-benefit analysis - it is not asked to estimate benefits quantitatively). Identify preliminary adaptation/mitigation measures 1. Establish key parameters of assessment

Suggestions:  Base year: 2005  Horizon: 2030  Use constant 2005 US dollars (and discount flows)  Use up to 2 discount rates per sector: - Public rate (used in public projects) - Private rate - When analysing Climate Change impacts, theory suggests not to use a discount rate higher than 3%.  Subsidies: optional Define base year and assessment period 1. Establecer los parámetros clave de la evaluación 1. Establish key parameters of assessment

Suggestions:  Use analytical models only if they are usually applied within the sector.  Projection alternatives:  Sectoral plans  Observed tendencies  Scenarios included in National Communications or strategic studies  Current situation Define analytical approach for projections 1. Establish key parameters of assessment

What should we have at the end of Step 1?  Precise definition of sectoral scope (including overlaps analysis).  List of key adaptation/mitigation measures to value.  Analytical method to estimate/project sectoral tendencies (model, current scenario projection, existing development plan, etc.) 1. Establish key parameters of assessment

Step 2: Compile historical I&FF data and other inputs for scenarios

 Compile historical annual data (I&FF and O&M) to address the following questions: 1. How much was invested in each sector (in recent years)? 2. What are the main types of investment in each sector? 3. Who has undertaken the investment? 4. What is the usual life of investments and duration of programmes?  Suggested period: (and if information is available).  Data should be collected for years. Compile annual I&FF data 2. Compile historical I&FF data and other input data for scenarios

Step 3: Define Baseline Scenario

 Describe what is likely to occur in the absence of ADDITIONAL policies to address climate change  Baseline scenario should reflect  Current sectoral & national plans  Expected socioeconomic trends  Expected investment trends (for each subsector) 3. Define Baseline Scenario

Step 4: Derive I&FF and O&M for baseline scenario

 Estimate I&FF for the sector up to 2030  Information should be disaggregated by:  Year  Investment entity (Corporations, Government)  Source of funds (national, FDI, official development assistance) 4. Derive I&FF for baseline scenario

Expected product (example Water sector– year 2010) Entidad inversoraFuente de FI&F BASELINE SCENARIO Expected I&FF - year 2010 WATER SECTOR Dam construction Information campaign for water efficient useTotal Inverstments IFFFO&MIFFF O& MIFFFO&M HOUSEHOLDSDomesticEquity and debt CORPORATIONS Domestic Domestic equity Domestic borrowing Foreign FDI Foreign loans 1000 Foreign Aid Total Corporations GOVERNMENT Domestic Domestic funds (budgetary) 300 Foreign Foreign loans Foreign Aid Total Government TOTAL

Step 5: Define Mitigation/ Adaptation Scenario

 Describe a situation where new measures are taken to adapt to/mitigate Climate Change. 5. Define Adaptation/Mitigation scenario

Define adaptation/mitigation scenario 1. Reevaluate and reprioritize the mitigation/adaptation measures previously defined according to:  Develpment plans/experience.  Technological and sociodemographic tendencies identified for baseline scenario.  New information gathered during the project. 2. Include qualitative information regarding benefits (health, other sectors, etc.) 3. Redefine measures in order to clasify them in:  “New” measures (eg.: new dam)  Measures that are “extensions” of measures included in baseline scenario (eg: bigger dam) 5. Define adaptation/mitigation scenario

Step 6 Derive I&FF for Adaptation/Mitigation Scenario

 Project the I&FF and O&M associated with the mitigation/adaptation measures selected.  Disaggregate flows by:  Year  Investment entity and source, 6. Derive I&FF for Mitigation/Adaptation Scenario

6. Derive I&FF for adaptation/mitigation scenario Example - Adaptation in Water Sector Annual flows Year WATER SECTOR – ADAPTATION SCENARIO ANNUAL FLOWS Measure.: Flood control Building of a bigger dam (than planned in the BS) (IF) Education programme (FF) O&M (of dam) … …… Total (cumulative )

Investment EntitySource of funds WATER SECTOR – ADAPTATION SCENARIO I&FF AND O&M – YEAR 2010 Measure: Flood control Building of a bigger dam (than planned in the BS) (IF) Education programme for risk management (FF) Total Investments IFFFO&MIFFF O& MIFFFO&M HOUSEHOLDSDomesticEquity and debt CORPORATIONS Domestic Domestic equity Domestc loans Foreign FDI Foreign loans 1000 Foreign aid Total Corporations GOVERNMENT Domestic Domestic funds (budgetary) 100 Foreign Foreign loans Foreign aid 500 Total Government TOTAL Derive I&FF for adaptation/mitigation scenario Example - Adaptation in Water Sector Year 2010

Step 7: Estimate additional I&FF needed to implement Adaptation/Mitigation measures

 Subtract the baseline I&FF from the mitigation/adaptation I&FF. 7. Estimate additional I&FF needed to implement adaptation/mitigation

Estimate additional I&FF 7. Estimate additional I&FF for adaptation/mitigation Additional I&FF = I&FF estimated for Adaptation/Mitigation Scenario minus I&FF estimated for Baseline Scenario I&FF are estimated for:  Each of the sectors selected (per year - cumulative)  Each of the adaptation/mitigation measures selected:  New investment and programmes: additional I&FF are total costs  Extended investment and programmes included in baseline: additional cost given by difference of I&FF in adaptation/mitigation and baseline scenarios  All investments and all programmatic expenditures (detailed per investment entity and financing source)

Estimate additional I&FF – Example (year 2010) Investment entitySource of I&FF BASELINE SCENARIO - WATER SECTOR Dam construction Infomration campaign for efficient water use IFFFO&MIFFF O&M C0RP. Foreign loans1000 GOV. DomesticDomestic funds 300 ForeignForeign aid TOTAL Investment entitySource of I&FF ADAPTATION SCENARIO - WATER SECTOR Construction of a bigger damEducation programme for risk management IFFFO&MIFFF O&M CORP. Foreign loans1000 GOV. DomesticDomestic funds 100 ForeignForeign aid500 TOTAL Investment entitySource of I&FF ADDITIONAL ADAPTATION COSTS FOR WATER SECTOR (Adaptation scenario I&FF – baseline scenario I&FF) Construction of a bigger dam Education programme for risk management IFFFO&MIFFF O&M CORP. Foreign loans = 0 GOV. DomesticDomestic funds 100-0=100 ForeignForeign aid = 500 TOTAL Estimate additional I&FF for adaptation/mitigation

investment entity Households Corporations Government baseline scenario mitigation scenario additional investments less investments Projected amount of I&FF (in US$) in a year additional investments Example: How annual mitigation investments would change (per year) Presentation of results 7. Estimate additional I&FF for adaptation/mitigation

Step 8: Evaluate policy implications

 Reevaluate adaptation/mitigation measures, given costs and national development objectives.  Identify the entities responsible for incremental changes in I&FF and the main sources of investment/programme funding  Determine policy instruments and measures to encourage changes in I&FF.  Discuss potencial implementation barriers. 8. Evaluate policy implications

Step 9: Sinthesize results and complete Report

Objectives of reporting:  Compare additional I&FF between sectors, years, entities and sources and between adaptation and mitigation.  Provide relevant information for decision making at local level  Compare results among countries. 9. Sinthesize results and complete Report