ASSESSING INVESTMENT & FINANCIAL FLOWS FOR CLIMATE CHANGE

INTRODUCTION TO THE TRAINING

Day 1  Introduction and project context  Why conduct an I&FF assessment?  UNDP I&FF methodology  Sectoral working groups Day 2  Sectoral working groups Day 3  Sectoral working groups  Reporting  Elaboration of national workplan Agenda

Training modalities  Plenary sessions/presentations and group discussions  Fully interactive and participatory  Group work within sector teams Objectives  Train national teams on the I&FF methodology  Agree on final workplan with clear deliverables & deadlines Modalities and objectives

Overview of preparations  Sectors selected: … (list here)  National Issues Papers on the selected sectors ready  Draft workplan ready with key deadlines … (list here)  Initial inter-ministerial dialogue on climate change conducted Preparations

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 These points are addressed in the project 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

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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

 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  Provides database of documents on climate change  Provides 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

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

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THE I&FF ASSESSMENT

Investment Flow  An investment flow (IF) is the capital cost of a new physical asset with a life of more than 1 year  Limited to new physical assets, because of climate change implications for the duration of the operating lives of the facilities & equipment purchased Definition I&FF and O&M

Financial Flow  A financial flow (FF) is an ongoing expenditure on programmatic measures; financial flows encompass expenditures other than those for expansion or installation o few physical assets.  Primarily ‘operation & maintenance’ (O&M) costs: salaries, raw materials, equipment maintenance, depreciation, utilities, rent, insurance, taxes etc. Definition I&FF and O&M

Operation & Maintenance (O&M) costs of new physical assets  The physical assets purchased with investment flows will have operation & maintenance (O&M) costs associated with them  Can vary considerably among investment flow types & have a significant effect on the total cost of an investment Definition I&FF and O&M

Entities of I&FF  Households  Corporations  Government Sources of I&FF  Domestic equity & subsidies  Foreign debt  Foreign aid  Foreign & domestic borrowing  Etc. Entities & sources

What is a scenario?  An internally consistent & plausible characterization of future conditions over a specified time period  A baseline scenario reflects business-as-usual conditions, describes what can occur without new policies to address climate change  A mitigation scenario incorporates measures to mitigate GHG emissions  A adaptation scenario incorporates new measures to respond to the potential impacts of climate change Scenarios

What questions does the I&FF assessment help answer?  What are the adaptation/mitigation options in certain sectors in the next 25 years?  Who is investing in the sector/major players & sources?  What shifts/increase in I&FF will be needed in the sector?  What will be the overall needs for additional I&FF? I&FF work

Sources of information Sources of information include  National Communications (1 st, 2 nd )  National Adaptation Programmes of Action (NAPAs)  National strategies & plans  System of National Accounts (SNA)  etc.

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I&FF METHODOLOGY STEP BY STEP

Steps in the Sectoral Assessments of I&FF to Address Climate Change

Key Steps: Mitigation

 Define detailed scope of the sector  Identify preliminary mitigation (or adaptation) measures  Specify assessment period & base year  Select analytical approach

Define detailed scope of the sector 1. Establish key parameters of assessment Criteria for scoping the sector  National priorities  Pre-work from National Communications, NAPAs etc.  Data availability

Preliminary mitigation/adaptation measures  Selection of measures should be based on  National & sectoral country priorities  Prior work on mitigation/adaptation  Feasibility of implementation  Benefits of measures (environmental, economic, & social) Identify preliminary mitigation or adaptation measures 1. Establish key parameters of assessment

How to scope a sector  Determine specific subsectors that will be included  e.g. within agriculture: crop cultivation, livestock, fishing …  Determine which processes, activities, entities and geographic regions are included in the sector Identify preliminary mitigation or adaptation measures 1. Establish key parameters of assessment

Potential sectoral overlaps Define detailed scope of the sector 1. Establish key parameters of assessment

Addressing additional benefits  The methodology does not provide for quantitative, but qualitative analysis, examples:  Change of crop type helps to adapt & emits less GHG  Enhanced water management to adapt to climate change can also have positive health effects  Job creation through a new policy Define detailed scope of the sector 1. Establish key parameters of assessment

Assessment period & base year  Base year 2005 recommended (or latest available)  Assessment period of recommended Cost accounting issues  Constant 2005 US$ are recommended  Costs for assets should be reported in the year in which they are expected to be incurred  Discounting of costs should be done Specify assessment period & base year 1. Establish key parameters of assessment

Preliminary mitigation/adaptation measures  Measures can be obtained from  Existing sectoral or national plans  National Communications  Technology Needs Assessments (TNAs)  National Adaptation Programmes of Action (NAPAs) Identify preliminary mitigation or adaptation measures 1. Establish key parameters of assessment

 Any of these analytical approaches can be used to develop scenarios, & associated streams of annual I&FF and O&M costs  A suitable sectoral model  A sectoral plan  A projection of sectoral trends  The current situation in the sector  A combination of those approaches Select analytical approach 1. Establish key parameters of assessment

At the end of step 1 Sector scope defined in detail, avoiding overlaps with other sectors Base year & assessment period (~2030) specified Preliminary mitigation (or adaptation) measures identified Analytical approach selected (model or spreadsheet exercise) Checklist step 1 1. Establish key parameters of assessment

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Key Steps: Mitigation

 Compile annual I&FF data, disaggregated by investment entity, source, & investment flow versus financial flow  Compile annual historical O&M data, disaggregated by investment entity & source  Compile other input data for scenarios

 3-10 years of historical I&FF data should be collected  Data should be  Compiled for each investment type  Annual  Disaggregated by investment entity & source  Divided into investment & financial flows  Reminder: What are the data sources? They determine data compilation! Compile annual I&FF data 2. Compile historical I&FF data and other input data for scenarios

Compile Historical I&FF Data & Other Input Data for Scenarios Category of Investment Entity Source of I&FF Funds Investment Type 1 (IF, FF, Total I&FF) Investment Type 2 (IF, FF, Total I&FF) Investment Type 3 (IF, FF, Total I&FF) Total Investment I&FF HouseholdsDomestic Corporations Domestic Foreign Total Corporation Funds Government Domestic Foreign Total Government Funds Template for 1 Year of Historical I&FF Data (simplified) 2. Compile historical I&FF data and other input data for scenarios

Compile annual historical O&M data, disaggregated by investment entity & source  Annual O&M costs for the physical assets that are in operation during the historical period  Collect for 3-10 years  Information about the expected lifetimes of the assets in operation during the historical period Compile annual historical O&M data 2. Compile historical I&FF data and other input data for scenarios

Template for Historical Annual O&M Data for an Investment Flow Compile annual historical O&M data Category of Investment Entity Investment Type 1: 2003 Investment Flow & Associated Annual O&M (in 2005 US$) 2003 Investment FlowAssociated Annual O&M During Historical Period Source of IF Funds IFSource of O&M Funds 2003 O&M 2004 O&M 2005 O&M Households Domestic Total Household IFTotal Household O&M Corporations Domestic Foreign Total Corporation IFTotal Corporation O&M Government Domestic Foreign Total Government IFTotal Government O&M Total Annual O&M (2005 US$) 2. Compile historical I&FF data and other input data for scenarios

Compile other input data for scenarios  Other historical & non-historical data relevant to the sector might be necessary  Depends on analytical approach, sectoral scope, & whether mitigation or adaptation focus  For a model: e.g. basic socioeconomic & technological data  For scenario development: information about current, past, & expected future GHG emissions & expected impacts & vulnerabilities 2. Compile historical I&FF data and other input data for scenarios

Checklist step 2 At the end of step 2 Necessary data identified & access located Arrangements for data-sharing made Annual I&FF data compiled (3-10 years), Annual historical O&M data compiled (3-10 years) Other input data for scenarios compiled 2. Compile historical I&FF data and other input data for scenarios

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Key Steps: Mitigation

Describe:  Socioeconomic trends  Technological change/advances  Business-as-usual investments  Define model/spreadsheet to be used for the assessment

Define baseline scenario  Characterizing the sector over the assessment period under business-as-usual conditions, in the absence of new policies on climate change  Expected socioeconomic trends  Technological change  Expected investments in the sector, including the nature, scale, & timing of those investments

Define baseline scenario  Should be consistent with trends reflected in the historical data collected in the previous step  Current or past climate change activities are considered in the baseline scenario

Checklist step 3 At the end of step 3 The baseline scenario is developed Agreed which policies & measures go into it Socioeconomic trends described Technological change/advances estimated Business-as-usual investments defined Exact model/spreadsheet to be used defined

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Key Steps: Mitigation

 Derive annual IF & FF estimates, disaggregated by investment entity & source  Derive annual O&M estimates, disaggregated by investment entity & source

Derive annual IF & FF estimates Example step 4: Energy sector  Labeling the activities, measures and policies that are considered to go into the baseline scenario (step 3) with their costs  Sticking to the current energy mix - label it with expected costs for power plants etc.  Government to expand the current grid – label it with expected costs for infrastructure etc.  …

Derive annual IF & FF estimates Compile annual estimates disaggregated by  Investment entity  households, corporations, government  Source  domestic or external  Investment flow  facility/technology type 1, type 2…  Financial flow type  practice/measure type 1, type 2…

Derive annual O&M estimates  Annual estimates of O&M costs for the baseline scenario are needed, including  O&M costs for assets purchased during the assessment period  O&M costs for assets purchased before the assessment period & that are expected to still be in operation

Checklist step 4 At the end of step 4 Annual I&FF estimated - each of the policies & measures of the baseline scenario is calculated Annual O&M costs estimated – for each of the investments the O&M costs are calculated

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Key Steps: Mitigation

Sector is selected for Adaptation  A baseline scenario & an adaptation scenario will be developed for that sector Sector is selected for Mitigation  A baseline scenario & a mitigation scenario will be developed for that sector

Define mitigation/adaptation scenario Criteria for the mitigation/adaptation scenario  Contains predefined measures and policy options  Is consistent with the baseline scenario regarding background information (assumed population growth etc.)  Is based on available data

Checklist step 5 At the end of step 5 The baseline scenario is developed: Agreed which policies & measures go into it Socioeconomic trends described Technological change/advances estimated Business-as-usual investments defined Exact model/spreadsheet to be used defined

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Key Steps: Mitigation

 Derive annual IF & FF estimates, disaggregated by investment entity & source  Derive annual O&M estimates, disaggregated by investment entity & source

Derive annual I&FF & O&M estimates Example step 6: Energy sector  Labeling the activities, measures and policies that are considered to go into the mitigation/adaptation scenario (step 5) with their costs  Changing energy mix to more renewables - label it with expected costs for power plants etc.  Raising awareness of energy users – label it with expected costs for awareness campaign  Putting into place incentive system to avoid emissions – label it with expected costs for implementation etc.

Derive annual I&FF & O&M estimates Compile annual estimates, disaggregated by:  Investment entity  households, corporations, government  Source  domestic equity, foreign debt, domestic subsidies, foreign aid  Investment flow type  facility/technology type 1, type 2…  Financial flow type  practice/measure type 1, type 2…  Use data to the degree disaggregated as available

Derive annual I&FF & O&M estimates  Annual estimates of I&FF for the mitigation/ adaptation scenario are derived  As in the baseline scenario, costs should be  In real terms (ideally in constant 2005 US$)  Discounted  Reported in the year in which they are expected to be incurred

Checklist step 6 At the end of step 6 Annual IF & FF estimated – each of the policies & measures of the baseline scenario is calculated Annual O&M costs estimated – for each of the investments the O&M costs are calculated

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Key Steps: Mitigation

 Estimate changes in cumulative I&FF  Estimate changes in annual I&FF

Estimate changes  Estimates the changes in I&FF needed to implement the mitigation (or adaptation) measures in the sector 2 objectives  To determine how cumulative incremental I&FF would change  To determine how annual investments would change

Estimate changes time (in years) projected amount of I&FF (in US$) baseline scenario mitigation scenario additional investments less investments Example how cumulative incremental I&FF would change (all entities)  Result: By the chosen time horizon (e.g. 2030) x (amount of money) needs to be invested x (amount of money) will be saved Note: The graph is only a fictitious example to illustrate the methodology and does not imply any assumed trend within the sector. Alternative examples could imply more additional investments needed in the future or less saved investments. The trend will vary according to the sector analyzed, the national circumstances, etc.

Estimate changes Example how cumulative incremental I&FF would change (all entities) time (in years) projected amount of I&FF (in US$) adaptation scenario baseline scenario additional investments less investments  Result: By the chosen time horizon (e.g. 2030) x (amount of money) needs to be invested x (amount of money) will be saved Note: The graph is only a fictitious example to illustrate the methodology and does not imply any assumed trend within the sector. Alternative examples could imply less additional investments needed in the future or more saved investments. The trend will vary according to the sector analyzed, the national circumstances, etc.

Estimate changes 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 investments would change (per year)  Result: To reach the Mitigation scenario x (amount of money) less of this source needed x (amount of money) more of this source needed Note: The graph is only a fictitious example to illustrate the methodology and does not imply any assumed trend within the sector. Alternative examples could imply more additional investments needed in the future or less saved investments. The trend will vary according to the sector analyzed, the national circumstances, etc.

Estimate changes in cumulative I&FF  2 calculations to determine how cumulative investments would change between the baseline scenario & the climate change scenario  1 st calculation: Estimating total I&FF needed to implement each investment type in the sector  2 nd calculation: Estimating total I&FF needed to implement all the investment types in the sector

Estimate changes in annual I&FF  3 calculations to determine how annual investments would change between the baseline scenario & the climate change scenario  1 st calculation: Estimating the I&FF needed to implement each investment type in the sector  Shows how investments in individual investment types would change over time

Estimate changes in annual I&FF  2 nd calculation: Estimating I&FF needed to implement all investment types in the sector, for each source/investment entity  Shows how investments by each source/investment entity would change over time  3 rd calculation: Estimating I&FF (for all investment types in the sector, & for all sources)  Shows how total investments in the sector would change over time

Checklist step 7 At the end of step 7 I&FF of the baseline scenario subtracted from adaptation/mitigation scenario: Changes in cumulative I&FF estimated – per investment type & for all investment types Changes in annual I&FF estimated – per investment type, per source & per sector

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Key Steps: Mitigation

 Determine policy instruments & measures to encourage changes in I&FF  Identify the entities that are responsible for the significant incremental changes in I&FF  Determine the predominant sources of their funds, important to distinguish between public & private sources of finance

Evaluate policy options  Re-evaluate initial prioritization of mitigation/ adaptation measures from step #5, based upon the incremental I&FF estimates  Determine investment entities responsible for most significant changes in I&FF & predominant sources of funds  Evaluate policy measures to implement proposed measures & to change investment patterns, & additional sources of funds

Checklist step 8 At the end of step 8 Policy instruments & measures determined to encourage changes in I&FF Former instruments & measures re-evalued Entities responsible for incremental changes in I&FF identified Predominant sources of their funds determined

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Key Steps: Mitigation

 Integrate I&FF results, & evaluation of policy instruments & measures, across sectors, & across mitigation & adaptation  Summarize objectives of study, methodology, inputs, & results in report  Complete reporting templates 9. Synthesize results and complete report

Integrate I&FF results & evaluation of policy instruments & measures  Sectoral results are compiled so that mitigation/ adaptation investments for each source & investment entity, & for each year, can be compared across sectors & across mitigation/adaptation  “Reporting Guidelines for the Assessment of Investment & Financial Flows to Address Climate Change” contains spreadsheets for this  Define purpose & target group to prepare report accordingly

Complete reporting templates Category of Investment Entity Source of I&FF Funds Incremental Cumulative ( ) Total I&FF (million 2005US$) MitigationAdaptation EnergyForestry Public Health Households Domestic Equity & debt Government support (subsidies) Total Household Funds (all domestic) Etc… Incremental Cumulative I&FF for All Investments in All Sectors

Complete reporting templates Year Incremental Annual Total I&FF (million 2005US$) MitigationAdaptation EnergyForestry Public Health Etc… Incremental Annual I&FF for All Investments in All Sectors

Complete reporting templates Documentation & Reporting during the assessment Report will be used for  2 nd national workshop  Further follow up activities  Note: Possible different audiences & different uses of report

Checklist step 9 At the end of step 9 I&FF results, policy instruments & measures integrated across sectors Reporting of the I&FF assessment completed regarding objectives, methodology, inputs & results

Steps in the Sectoral Assessments of I&FF to Address Climate Change

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OUTLOOK & NEXT STEPS

Way forward What next?  Nurturing links to national policymaking processes  Leveraging international donor assistance  Conducting sensitivity analysis/capacity assessment  Preparing periodic updates to the assessments