Climate finance as a catalyst for leveraging private
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Climate finance as a catalyst for leveraging private sector financing African Regional Workshop on NAMAs August 17, 2015 Dr. Sebastian Wienges, Sr. Climate Change Specialist Strictly Confidential © 2013 swienges@worldbank. org Strictly Confidential © 2013
I Definitions Strictly Confidential © 2013
International Finance for NAMAs • Not only grants • Not only public money • Leverage and mobilization of private investments needed • Particularly in regard of the huge sustainable development co-benefits of NAMAs Strictly Confidential © 2013
Domestic Finance • Developing country governments will take the lead on NAMA development and implementation; • Financing for NAMAs can come from domestic sources; international support will be provided according to needs and to ambition; • Provision of support for developing countries will decrease over time according to decreasing needs and parallely domestic finance will increase. Strictly Confidential © 2013
Definition There is no agreed upon definition for climate finance. Carbon Finance: = resources provided to a project to purchase greenhouse gas (GHG) emission reductions (“carbon” for short) Strictly Confidential © 2013
Climate Finance: Investments in technology and • SD benefits • enabling environments • capacity building Carbon Finance: • Emission reductions Strictly Confidential © 2013
II Carbon Finance Strictly Confidential © 2013
How Carbon Pricing enhances the mitigation investment environment Carbon Pricing • Makes low emissions products less expensive compared to high emissions products and thereby more competitive, thus attracts investments (domestically and internationally) into low emissions technologies and industries • Generates revenues which can be re-invested in • • • Adaptation to cope with the losses and damages through climate change Additional mitigation actions Compensation for social impacts on low income households • Incentivizes private sector to invest in low emission development for economic reasons • Helps ultimately private companies to price in risks and (eventual) costs of climate change Strictly Confidential © 2013
Title of Presentation Strictly Confidential © 2013 9
Enhancing an enabling environment for mitigation actions: Carbon Pricing Purpose: • Make polluters pay, and • Make a high emissions product more expensive than the same low emissions product Options: • Carbon Tax: raise the price of a product by a certain amount according to the tons CO 2 which have been emitted during production process • Carbon Market: limit the quantity of emissions your sources (coal power plants) are allowed to emit per year, and allocate allowances to emit GHG to the sources which add up to the limit of the allowed quantity per year. The sources might then trade these allowances amongst them at prices they are willing to pay for. Strictly Confidential © 2013 10
III Climate Finance Strictly Confidential © 2013
Accessibility of climate finance • needed financial resources are available • The mobilized financing from e. g. green bonds are channeled in various other instruments (loans, special purpose vehicles, consumer loans) appropriate for individual (sectoral/national) investment projects • NAMAs are perceived as nothing substantially new • Bottleneck is the lack of an investible project pipeline to invest financing in: financing for project development phase is missing, bonds can only be based on projects when they start to generate revenues • “IFC Warehouse approach”: public support for upfront investments in projects until they generate a revenue (then a private investor can acquire the project and re-finance it) • Due to easy management and attractiveness for private investors, national governments will have to consider bonds at least as instrument to mobilize financing for climate actions Strictly Confidential © 2013
Different private sector investors have different appetites • The private sector is heterogenous • Different private sector actors have different preferences and liabilities • Financial instruments to mobilize private climate finance must fit for barriers, which the NAMA must overcome & match preferences and liabilities of investors • Financial assets will be selected by private investors according to: Liquidity Revenue Risk Strictly Confidential © 2013
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How to compile this information • • Standard Business Plan NAMA Project Balance Sheet How to integrate NAMA-specific features • Illustrate that a sustainable investment in a NAMA improves • liquidity, (transformation will increase capital flows in targeted market) • revenue, (transformation secures long-term profitability and enhances enabling environment) and • risk (sustainable goals will secure public protection of investments to a certain degree) (compared to a non-sustainable investment, which is characterized by equal quantitative financial values) Strictly Confidential © 2013
NAMA Balance Sheet Guiding questions from diagram 1 (The qualitative responses how the NAMA will be designed can increase (+) or decrease (-) the attractiveness of the financial asset to finance the investments in the NAMA. ) quantitative Liquidity (1) Maturity of asset 1. 1 +/- 1. 3 +/- Due date of asset Minimum investment amount Date of investment to be made Return on investment 2. 2 +/- 2. 6 +/- 2. 10. 1 +/- 2. 11. 1. 1 +/- Market/growth potential 4. 2. 3. 2 +/- Investment needs 2. 4 +/- 2. 4. 1 +/- 2. 4. 2 +/- 2. 4. 3. 1 +/- Own capital Borrowed capital 2. 1 +/- 2. 1. 2. 2 +/- Price of service or product Fixed assets (investments, equipment) Own capital Borrowed capital Current assets 2. 5 +/- Revenue (2) Footer qualitative Strictly Confidential © 2013 17
IV Conclusions Strictly Confidential © 2013
How To Mobilize the Relevant Actors? Clear Policy Signal INDCs and a legally binding global agreement can be such a signal Develop standards for what constitutes a good (i. e. ambitious and transformational) NAMA: Ø MRV and robust accounting rules Ø Contribution to transformational change and sustainable development Ø Embedding the NAMA into a LEDS and the INDC Financing and implementing pilot NAMAs Overcome barriers and develop models for replication Strictly Confidential © 2013 09. 03. 202
Leveraging Private-Sector Finance for NAMAs • Prepare investable project pipeline in order to channel available private finance to projects • Important to understand local barriers to private sector investment • in order to lower risks to investors and assure appropriate returns to attract private capital, NAMA resources could be used to (via financial intermediaries) e. g. : • • • lower development costs of investment projects under a NAMA through technical assistance; lower the cost of capital through equity and debt co-financing instruments; cover the incremental costs or financing the riskier aspects of investments; lowering risks through credit enhancement; insurance or other forms of guarantee. • Such mechanisms can further bring down market barriers, bridge financial gaps and share risks with the private sector Strictly Confidential © 2013
Thank you for your time and attention Dr. Sebastian Wienges, Sr. Climate Change Specialist, swienges@worldbank. org Strictly Confidential © 2013
Concessional Loan Donor Development Bank Public Bank Company/ in target country Household Investment Grant Conc. Loan Guarantee Investment Loan Equity & Debt Strictly Confidential © 2013
Public-Private Partnership Donor DEG Company ESCOs Investment Grant (+Loan) Equity Debt Investment Strictly Confidential © 2013 09. 03. 202
Cooperation with bank in target country Donor Bank in target country Company/ Household Investment Grant Conc. Loan Green Bond Equity & Debt Investment Strictly Confidential © 2013 09. 03. 202
Cooperation with institutional investor from donor country Donor Grant Green Bond Institutional Investor Company/ Household Equity & Debt Investment Strictly Confidential © 2013 09. 03. 202
Cooperation with technology providers from donor countries Donor Investment vehicle Grant purchase of technology or service Technology provider Installation of technology Company/Household Investment Collection of revenues Investment & refinancing Strictly Confidential © 2013 09. 03. 202
The World Bank Group enables carbon pricing across all stages of The World Bank Group enables carbon pricing development across all stages of development Promoting the case and evidence base for carbon pricing e. g. , Carbon Pricing Leadership Coalition; State and Trends of Carbon Pricing reports Connectivity, global trade Implementation, scale-up Planning, design, pilots Innovating and building readiness for carbon pricing Partnership for Market Readiness; Pilot Auction Facility Enabling scale-up of carbon pricing efforts for a meaningful price on carbon Enabling connectivity of carbon pricing efforts for a longterm, stable price on carbon Networked Carbon Markets Carbon Partnership Facility; Partnership for Market Readiness; Scaled Up Crediting Fund Strictly Confidential © 2013 27
The Carbon Pricing Leadership Coalition International Momentum is building § At the 2014 UN Climate Summit, governments, business and investors showed support for accelerating action to price carbon: § 74 countries and 23 states, provinces and cities joined over 1, 000 businesses and investors in signaling their support for carbon pricing. § These countries together are responsible for 54% of GHG emissions, 52% of GDP and almost half of the world’s population. A Partnership for Action § The World Bank Group and its partners followed this success by launching the Carbon Pricing Leadership Coalition. § The coalition brings together leaders from government, business and civil society with the goal of putting in place effective carbon pricing policies that maintain competitiveness, create jobs, encourage innovation, and deliver meaningful emission reductions. Coalition activities: § Deepen the understanding of the business case for carbon pricing. The coalition is developing scenarios that will guide decision making by governments, companies and investors under a variety of carbon pricing policies and timelines. The coalition is also encouraging business to incorporate the cost of carbon in their own operations and to be transparent about how they use carbon pricing. § Establish a foundation for sound policy development. The coalition is collecting a set of best practice principles for carbon pricing, building from lessons learned in jurisdictions around the world. The coalition will help governments to gain stakeholder support for carbon pricing as a climate solution. § Raise global awareness. The coalition’s work will inform and inspire a Carbon Pricing Leadership Panel, a high-level group of government, business and civil society leaders who will serve as ambassadors to advocate for effective carbon pricing across the globe. Strictly Confidential © 2013 28
Partnership for Market Readiness The PMR provides support to countries to design and implement a range of climate change mitigation policies and cost-effective measures – including carbon pricing instruments – in order to scale up GHG mitigation. Participation Supported activities § Provide grant funding to improving technical and institutional “readiness”, including work on GHG registries; Monitoring, Reporting and Verification (MRV) systems, data collection and management tools, and regulatory frameworks § Participants include: ▬ 18 developing countries/emerging economies & 13 countries that donate financially § Support piloting and testing of innovative market instruments (e. g. , domestic emissions trading schemes (ETS) or scaled-up crediting mechanisms) § Provide a platform for technical discussions and knowledge creation, country-to-country exchanges, and collective innovation on new market instruments § Share lessons learned & best practices among policy makers and practitioners Strictly Confidential © 2013 29
Networked Carbon Markets Objective § A linked or networked international carbon market is desirable § In the absence of harmonized systems, ‘comparability’ among countries and ‘fungibility’ among carbon assets is increasingly relevant for an integrated international carbon market § ‘Comparability’ and ‘fungibility’ involve determining the climate change mitigation value of carbon assets and determining trading ratios for carbon assets or ‘carbon exchange rates’ Key Components 1. Independent assessment framework to determine the climate change mitigation value of carbon assets and enable their fungibility in the international market. 2. International Carbon Asset Reserve to support and facilitate carbon market related functions. 3. International Settlement Platform to track cross-border trades and possible clearing house function. § Mitigation value and carbon exchange rates together constitute an approach to facilitating an integrated international carbon market Strictly Confidential © 2013 30
State and Trends of Carbon Pricing 2015 report Objective § To support the growing momentum for carbon pricing initiatives worldwide, the report will target the public and private stakeholders engaged in their design and implementation, and also provide critical input for the negotiations leading to the Conference of the Parties (COP 21) in Paris. Key Components 1. Carbon pricing status and overview. Updated overview of existing and emerging carbon pricing initiatives around the world—including national, sub-national and corporate activities. 2. Analytical issue focus: Competitiveness and leakage. A focused analysis of competiveness and carbon leakage, and their impact in the development of sub-national CP initiatives. 3. A forward-looking assessment of the advantages of international cooperation in reaching stringent global targets. A review of existing modeling work will provide qualitative and quantitative assessment of saving potentials. Strictly Confidential © 2013 31
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