METHODOLOGY FOR ASSESSING INVESTMENT AND FINANCIAL FLOWS TO ADDRESS CLIMATE CHANGE

INTRODUCTION

To articulate national needs to address climate change in key sectors in a systematic way To encourage long-term sectoral planning that incorporates climate change investment decisions To yield more detailed estimates of the incremental investment needed to address climate change  can feed into National Adaptation Programmes of Action, National Communications, or Technology Needs Assessments To estimate the magnitude of national efforts required to address climate change in a standardised, objective manner and inform national negotiators To engage policy-makers in making climate investment decisions that are driven by national development and poverty reduction priorities Why undertake an I&FF assessment? WHY ?

WHAT ? The I&FF assessment considers: What are the adaptation/ mitigation options for selected key sectors in the next 25 years? Who is investing in the sector ? Who are the major players & funding sources? What shifts/increases in I&FF will be needed in the sector? What will be the overall needs for additional I&FF to address climate change? What does a national assessment of investment & financial flows seek to answer? From a development perspective, what does my country need to do to address climate change in selected key sectors, and what financial landscape will be required to achieve those needs?

WHO ? I&FF assessment requires a multi-disciplinary team For each sector: Environmental/climate specialists to build scenarios under climate change Planning experts to: Assess implications of the scenarios on existing development plans in chosen sectors & consider how mitigation or adaptation measures would be implemented Finance/economics experts to cost the measures Representatives from all relevant ministries Academic, NGO, and private sector inputs also useful

Provides approach through which countries: Take investment and financial decisions for mitigation and adaptation in priority sectors over next 25 years based on national development priorities Build a mitigation or adaptation scenario for each sector Cost their needs against a baseline scenario Engages directly with policy-makers to ensure that decisions are country-led and driven by national priorities Captures the full financial needs of countries: methodology includes both specific physical investments and the wider financial flows for non-physical expenditures UNDP I&FF methodology HOW ?

1. For each sector, evaluate investments and financial flows for two policy scenarios:  Baseline Scenario  Adaptation or Mitigation Scenario 2. Estimate (cost) the additional flows needed to implement new adaptation or mitigation measures (that is, the difference between flows for the two scenarios). 3. Breaks spending down across three entities: government, corporations (including NGOs), and households General VisionMETHODOLOGY

1: What is my cumulative incremental I&FF over time? time (in years) Projected amount of I&FF (in US$) adaptation scenario baseline scenario Incremental cost

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 2: How would annual investments change (per year)?

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): for physical assets (salaries, raw materials, taxes, insurance, etc.) Defining Investment and Financial Flows?

Examples of investment & financial flows 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

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 new measures to mitigate (reduce) greenhouse gas emissions.  Adaptation Scenario: incorporates new measures to respond to the potential impacts of climate change. What is a scenario?

Example - Water Sector Baseline Scenario: provide water to a growing population by 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

Steps to conduct sectoral I&FF Assessment METHODOLOGY

I&FF METHODOLOGY STEP BY STEP

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)  Analytical approach for defining future scenarios 1. Establish key parameters of assessment

Water Health Tourism Forestry Energy Agriculture GLOFs Electricity Oil/gas REDD Livestock Coastal zones Water-borne diseases Mangroves Bioenergy Energy plantations Biofuel Transport Food security Hydropower Identify potential sectoral overlaps Define scope of the sector 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:  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, Consumer) Source of funds (national, Foreign Direct Investment, Official Development Assistance) 4. Derive I&FF for baseline scenario

Step 5: Define Mitigation or Adaptation Scenario

 Describe the 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 socio-demographic 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 classify 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

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  Extended investment of programmes included in baseline  All investments and all programmatic expenditures (detailed per investment entity and financing source)

Step 8: Evaluate policy implications

 Re-evaluate 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 potential implementation barriers. 8. Evaluate policy implications

Step 9: Synthesize results in 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  Document and archive results 9. Synthesize results and complete report