Report No. ACS4431 Latin America Accessing International Climate Change Related Finance in Latin America and the Caribbean June 14, 2013 LCSPS LATIN AMERICA AND CARIBBEAN Document of the World Bank Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, http://www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. ii This volume is a result of a team effort. The research and writing of this report was prepared by Latin America and Caribbean PREM Public Sector Unit with financing from Spanish Trust Fund for Latin America and the Caribbean (SFLAC). This policy note was prepared by a team led jointly by Svetlana Proskurovska (Sr. Public Sector Specialist and Task Team Leader) and Jenni Pajunen (Public Sector Management Consultant and Co-Task Team Leader, LCSPS). Other team members included: Juan Carlos Belausteguigoitia (Lead Environmental Economist, LCSEN); and David Cheney, Javier Gonzalez, Ismael Antonio Sánchez, and John Wickham (Consultants, LCSPS). The team received guidance and support from LAC PREM management—Rodrigo Chaves (Sector Director, LCSPR), Ede Jorge Ijjasz- Vasquez (Sector Director, LCSDN) Arturo Herrera Gutierrez (former Task Team Leader and Sector Manager) and Veronica Zavala (former Sector Manager, LCSPS). In addition, the following individuals provided valuable comments and support: Philippe Ambrosi (Sr. Environmental Economist, ENV), Tuuli Bernardini (Environmental Specialist, LCSEN), Rosina M. Bierbaum (Consultant, SDNCE), Carter J. Brandon (Lead Economist, LCSSD) Nancy Chaarani-Meza (Operations Analyst, ENV), Roland Clarke ( Lead Public Sector Specialist, LCSPS), Robert Dixon, (Team Leader, Climate & Chemicals, GEF), Daniela Felcman (Operations Analyst, LCSPS), Monica Fernandes (Program Assistant, Climate & Chemicals, GEF), José Fermín Villatoro (El Salvador), Vivien Foster (Sector Manager, SEGEN), Adrian Fozzard (Lead Public Sector Specialist, PRMPS), Adrienne Hathaway ( Jr Professional Associate, LCSPS), Richard Hosier (Sr. Environmental Specialist, ENV), Tracey Hsu (Jr. Professional Associate, LCSPR), Kanta Kumari Rigaud (Sr. Environmental Specialist, ENV), Justin Locke (ET Consultant, LCSUW), Bradley Lyon (Consultant, LCSUW); Carmen Machicado (Operations Officer, LCSPS); David Maleki, (Consultant, ENV), Muthukumara S. Mani (Sr Environmental Economist, SASDC), Edgardo Mosqueira (Sr. Public Sector Specialist, ECSP4), Bertha Mburugu (Program Assistant, LCSPS); Lucy Diana Mendez Bravo (Language Program Assistant, LCSPS), May Olalia (Sr. Operations Officer, LCSPS), Claudia Ortiz-Montemayor (Jr. Professional Associate, GEF); Idah Pswarayi-Riddihough (Sector Manager, AFTN1), Shyla Raghav (Adaptation Associate, Adaptation Fund), Karina Ramirez Arras (Jr. Professional Associate, LCSPS), Anita Tarce (Program Assistant, LCSPR), Snorre Waage (Consultant, LCSUW), Dimitrios Zevgolis (Climate Change Specialist, GEF), and Zhihong Zhang (Sr. Program Officer, ENVCI). The opinions expressed in the report are those of the authors and do not represent the official views of the World Bank. iii Abbreviations and Acronyms ADB Asian Development Bank AFB Adaptation Fund Board AfDB African Development Bank CDM Clean Development Mechanism CER Certified Emission Reduction CIF Climate Investment Funds CTF Clean Technology Fund EBRD European Bank for Reconstruction and Development ERU Emission Reduction Unit ET Emission Trading FAO Food and Agriculture Organization FIP Forest Investment Program GBI GEF Benefits Index GCI General Capital Increase GDPI Gross Domestic Product Index GEF Global Environment Facility GHG Greenhouse Gas GNI Gross National Income GPI GEF Performance Index IBRD International Bank for Reconstruction and Development IDA International Development Association IDB Inter-American Development Bank IFAD International Fund for Agricultural Development IFC International Finance Corporation JI Joint Implementation LAC Latin America and the Caribbean LDC Least Developed Country LDCF Least Developed Countries Fund LULUCF Land Use, Land Use-Change and Forestry MDB Multilateral Development Bank MIE Multilateral Implementing Entity NIE National Implementing Entity NGO Non-governmental organization ODA Official Development Assistance ODS Ozone Depleting Substance PIF Project Identification Form POP Persistent Organic Pollutant PPCR Pilot Program for Climate Resilience RAF Resource Allocation Framework RDB Regional Development Bank RE/EE Renewable Energy and Energy Efficiency REDD Reducing Emissions and Deforestation and Forest Degradation RMU Removal Unit SCCF Special Climate Change Fund SCF Strategic Climate Fund SECCI Sustainable Energy and Climate Change Initiative iv SREP Scaling Up Renewable Energy Program in Low Income Countries STAP Scientific and Technical Advisory Panel STAR System for Transparent Allocation of Resources UN United Nations UNDP United Nations Development Program UNEP United Nations Environment Program UNFCCC United Nations Framework Convention on Climate Change UNIDO United Nations Industrial Development Organization UNWFP United Nations World Food Program WB World Bank WBG World Bank Group v Table of Contents Acknowledgements ............................................................................................................... iii Executive Summary.................................................................................................................. ix Part I: Climate Financing Trends in the LAC Region ............................................................... 1 I. Introduction ........................................................................................................................ 1 II. Global Landscape of Climate Finance .............................................................................. 3 III. Climate Financing in the LAC Region .......................................................................... 11 IV. Applying to Climate Funds............................................................................................ 18 V. Factors Enhancing LAC Access to Global Climate Funds ............................................. 18 VI. Conclusions and Recommendations .............................................................................. 21 Appendix 1: Clean Development Mechanism in China – Relevant Lessons for the LAC Countries .............................................................................................................................. 25 References ............................................................................................................................ 27 Part II: Case Studies ................................................................................................................ 30 El Salvador: Coping with Institutional and Financial Challenges in Addressing Climate Change ................................................................................................................................. 30 I. Introduction ................................................................................................................... 30 II. Environmental and Institutional Challenges................................................................ 31 III. Key Institutions and Policies to Addresses the Challenges........................................ 32 IV. Access to International Climate-Change Funds ......................................................... 33 V. Role of Public Management Systems in Accessing and Absorbing Climate Finance 37 VI. Conclusions and Recommendations .......................................................................... 45 References: El Salvador Case Study ................................................................................ 47 Acronyms: Case Study on El Salvador ............................................................................ 48 Bolivia: Facing Challenges in Making Efficient Use of Climate Financing ...................... 50 I. Institutional Challenges ................................................................................................ 50 vi II. Environmental and Climate-Related Challenges ......................................................... 51 III. Access to International Climate-Change Financing ................................................... 52 IV. Institutional Framework for Absorbing Climate Financing ....................................... 53 V. Reliable Financial Management and Financial Reporting Structure........................... 57 VI. Demand for Good Governance and Transparency from Civil Society and Donors .. 57 VII. Conclusions and Recommendations ......................................................................... 58 References: Bolivia Case Study ....................................................................................... 60 Summary of Climate-Related Funding in Bolivia............................................................ 61 Acronyms: Case Study of Bolivia .................................................................................... 64 PART III: Annexes .................................................................................................................. 65 Annex I: Global Climate Funds of Possible Interest to LAC, 2011 .................................... 65 Additional Global Climate Funds of Possible Interest to LAC, 2011 .............................. 66 Annex II: Main Instruments for Financing Climate Action ............................................... 68 1. Climate-Specific Additional Resources Available Under the UN Framework Convention of Climate Change (UNFCCC) .................................................................... 68 2. Carbon Market Resources ......................................................................................... 69 3. Dedicated Concessional Funding (ODA) from the DAC Community ..................... 69 4. Other Climate Funds ................................................................................................. 70 5. Examples of Non-Climate-Specific Support from Donors and Multilateral Development Banks ......................................................................................................... 71 Annex III: Characteristics of Major Climate-Change Funds .............................................. 73 1. Global Environment Facility (GEF) Trust Fund ....................................................... 73 2. Least Developed Countries Fund (LDCF) and Special Climate Change Fund (SCCF) ............................................................................................................................. 74 3. Adaptation Fund ....................................................................................................... 76 4. GEF Earth Fund/Public-Private Partnership ............................................................. 77 5. Clean Technology Fund (CTF) ................................................................................. 78 vii 6. Strategic Climate Fund (SCF)................................................................................... 79 7. Sustainable Energy and Climate Change Initiative (SECCI) Funds ......................... 81 Annex IV: Applying to Climate Funds ............................................................................... 83 Obligations under UNFCC and Key Evaluation Methodologies ..................................... 83 Fund-Specific Procedures ................................................................................................ 86 1. Global Environment Facility (GEF) Trust Fund ....................................................... 86 2. Adaptation Fund ....................................................................................................... 88 3. Global Environment Facility (GEF) Earth Fund/Public-Private Partnership ........... 89 4. Clean Technology Fund (CTF) ................................................................................. 90 5. Sustainable Energy and Climate-Change Initiative (SECCI) Funds ........................ 91 Annex V: Access to the Global Environmental Facility by the LAC Countries ................. 92 viii Executive Summary 1. Financing projects and programs to mitigate impacts of, and adapt to, the climate change is a matter of necessity not choice. The world is becoming increasingly concerned with the impact of the climate change on the lives of future generations. The projected 4 C warming by the end of the century by the World Bank study1 calls for commitment and action on the part of governments and the global community more broadly to prevent the dangerous impacts of greenhouse gas increases that seriously threaten development, and in certain cases the survival itself. In the LAC Region specifically, the expected annual mean warming is likely to be higher than the global mean with the exception of the southern part of the South America2. According to recent ECLAC studies, climate change could cost Latin America about one percent of GDP annually. On the other hand, LAC governments face both internal and external pressures to efficiently manage their public finances while responding to growing climate-change challenges. Like many others in the world, LAC countries currently face serious fiscal challenges which support a case for a larger role for climate financing. 2. This Green Expenditure Policy Note looks at factors facilitating the access to international financial instruments for LAC countries that support mitigation of and adaptation to climate change. The President of the World Bank Group Dr. Jim Yong Kim boldly puts action to curb the climate change in the focus of the World Bank’s development agenda for the coming years linking this action to the goal of reducing inter-generational inequality.3 In this regard, having focus on public sector management and governance that supports shared growth and prosperity and opportunities for all, the Public Sector Group of the Poverty Reduction and Economic Management Department of the Latin America and the Caribbean (LAC) explores in this Policy Note two questions: (i) does the quality of government institutions matter for enabling action aimed at mitigation or adaptation to the climate change? and (ii) what financial instruments are available to governments in addition to own resources to address climate change challenges? This Policy Note, targeted at LAC Region’s Ministries of Finance, aims to present them with advice on how to achieve greater 1 The World Bank: Turn Down the Heat: Why a 4C Warmer World Must be Avoided, November 2012. http://climatechange.worldbank.org/sites/default/files/Turn_Down_the_heat_Why_a_4_degree_centrigrade_war mer_world_must_be_avoided.pdf 2 Christensen et al. Regional Climate Projections, In: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA 3 Jim Yong Kim, Within Our Grasp: A World Free of Poverty. April 2, 2013. Speech at Georgetown University http://www.worldbank.org/en/news/speech/2013/04/02/world-bank-group-president-jim-yong-kims-speech-at- georgetown-university ix access to international financing or co-financing of projects supporting renewable and alternative energy generation for transport, agriculture, housing, preservation of unique ecosystems, and other projects supporting sustainable development.4 3. Access to international climate finance is broadly determined by a country’s ability to attract, absorb and effectively direct funds to support credible policies, programs, and projects—that is, by having an effective national strategy to deal with climate change. And there is a growing focus on strengthening countries readiness to manage climate finance — that is, having the capacities to plan for, access, deliver, and monitor and report on climate finance (both international and domestic) in ways that catalyze low-carbon development and are integrated with national development priorities.5 4. Traditionally, the Governments’ role in environmental economics is to manage risk through regulation, attract, manage and distribute resources through environmental policies. The role of the Ministries of Finance is to implement Government policy, manage budget cycle and negotiate the budget allocations. Globally, there is an increasing consensus that climate finance should be fully integrated in the national public financial management and fiscal frameworks from planning, budgeting, implementing and accounting for expenditures. While environment ministries have traditionally led the dialogue on environmental issues, the role of finance ministries is expanding. This is also partly because the introduction of new domestic measures, including carbon taxes and green subsidies, necessitates a financial oversight role for finance ministries. Consequently, this topic is of increasing importance not only for the environmental but also for the public financial management specialists. 5. In this Policy Note (along with two country case studies and four Annexes), we describe the climate challenges facing the LAC region and then discuss the various climate- financing flows. We include both public multilateral and bilateral sources of climate finance, as well as private sources. And we address the differences in financing for mitigation and for adaptation. We then discuss the factors affecting LAC countries’ access to climate financing, and how countries can apply to several of the principal global and regional climate funds. Our objective is to disseminate knowledge that will help governments of all LAC countries (not just the large, middle-income countries), and particularly their finance ministries, understand and access new climate funds and financing mechanisms. With greater understanding, LAC governments should be able to maximize the potential benefits of climate change financing and improve environmental management. 4 The Note does not perform an in-depth analysis of environmental challenges in the LAC Region or globally, leaving this to professional scientific research. Neither does it analyze the commitments and actions of the global community to make financial resources available for addressing environmental problems. 5 UNDP, 2012, Readiness for Climate Finance: A framework for understanding what it means to be ready to use climate finance. x 6. The Policy Note analyzes a number of parameters that are likely to have contributed to the level of access to international climate change financing. There is no simple and direct relationship between each one factor and the resulting volume of financing achieved. The report concludes that interplay of various factors shapes the final outcome. These factors are:  The quality of public administration, including the quality of institutional arrangements for environmental governance and public financial management;  The size of the economy that determines the level of energy consumption and CO2 emissions;  The eligibility criteria of various funds that have specific environmental focus that may targets some environmental conditions and not others;  Co-financing requirements that are less burdensome for higher middle income countries than for countries with lower incomes;  Availability of grant-based finances from the Pilot Program for Climate Resilience for low income countries and from Climate Change Adaptation Fund. 7. The Policy Note consists of three Parts and described further. Part I reviews the global landscape of the climate change financing for mitigation and adaptation and emerging trends, identifies various financial instruments, and presents an overview of the LAC’s share of available finances from several public financing sources, both bilateral and multilateral. This Part also helps to match specific climate challenges with the appropriate financing instruments. It also overviews the application process and advises on strategies for more successful application based on factors listed in paragraph 6 above. 8. Part II reviews two case studies for Bolivia and El Salvador that demonstrate how each of these countries addresses environmental challenges through its policies, institutional systems and involvement of the civil society. The Case of El Salvador emphasizes the importance of the coordinated approach of key government institutions, including those in the center of government, such as the presidency and the ministry of finance, as well as the ministry responsible for environmental management and line ministries, such as the ministry of works and others. This case study identifies such financial, political and technical obstacles in El Salvador to effective access to climate change related financing. The Bolivian case refers to successful access to climate change financing for projects in areas of international waters, forestry, protected areas and sustainable energy. This case study highlights that consistent policies and the ability to demonstrate co-financing of internationally financed projects are key. Both case studies make a strong point that sustainable technical capacity and strong institutional coordination in the public administration are essential to identifying, developing and implementing projects. This conclusion dovetails with the general lesson of Part I that the quality of the public administration matter. 9. Part III includes technical annexes, which represent a compilation of technical information presenting main climate change financial instruments. A list of global and specialized climate funds of possible interest to LAC countries appears in Annex 1. This xi information serves as a practical guide for Ministries of Finance when identifying suitable financial instruments. However, the financing instruments evolve, following international policies on addressing the climate change challenges, implying potential changes in the information collected for the purposes of this Note. A complementary list of climate finance instruments appears in Annex II, in which climate funds as well as financial tools are named, described, and categorized according to their primary purpose (e.g., climate change mitigation or adaptation; reduction of financial risk; and insurance against climate and other natural disasters). The financial instruments in Annex II are further categorized according to whether they represent Official Development Assistance (ODA) (i.e., falling under the agreed goal of 0.7 percent of developed countries’ GDP by 2015 to help meet the UN Millennium Development Goals or whether they represent so-called “new� and “additional� climate finance, which are monies in excess of ODA devoted to meeting the climate needs of developing countries (which industrial countries pledged to provide at the UN Framework Convention on Climate Change (UNFCCC) conferences in Copenhagen and Cancun). A more detailed description of several of the largest climate funds--including when such funds were founded, their purpose, and eligibility requirements--are presented in Annex III. Annex IV provides a step-by-step description of how to apply to the largest climate funds. Annex V lists the LAC projects that have been supported by Global Environment Facility (GEF) by country. xii Part I: Climate Financing Trends in the LAC Region I. Introduction 1. Countries in Latin America and the Caribbean (LAC) face a host of climate challenges ranging from deforestation, natural disasters and land degradation to urban pollution and inadequate solid waste management. The cost of climate-related disasters is estimated at more than US$5 billion6 a year, with the poor suffering the most from the adverse effects of climate change. These adverse effects are expected to intensify in the LAC region, owing to projected decreases in rainfall, heavy and growing demands for transport and energy generation, as well as geography, topography, and demographics. Efforts at mitigating and adapting to the negative effects of climate change have been supported by a wide range of public multilateral and bilateral, and private, funding sources. These efforts have met with varying degrees of success. 2. Climate financing is offered for both mitigation of climate change and adaptation to it. Mitigation refers to social, economic, and technological change that reduces greenhouse gas (GHG) emissions to slow global warming, while adaptation refers to measures that reduce the severity of the damage associated with climate change. Successful efforts at mitigation reduce the costs of adaptation and together, mitigation and adaptation constitute an overall strategy to address climate change. At the same time, the interaction of mitigation and adaptation needs poses complexities for the provision, planning, and management of climate financing. 3. In many LAC countries, most public multilateral and bilateral sources of climate finance go to capital investments, especially in energy efficiency and renewable energy. The private-sector engagement is less well understood and the available information sources are fewer. Nonetheless, most global finance for climate change comes from private sources and even though public bilateral and multilateral financing flows are growing, most public actors are increasingly looking to leverage private financing, whose potential is far greater. 4. LAC countries, like many others in the world, currently face serious fiscal challenges and need to contain growing budget deficits. These fiscal constraints imply a larger role for climate financing. Fortunately, the amount of such financing, which is already significant in the LAC region, is expected to rise over the medium term. Most notably, participants in the UN Framework Convention on Climate Change (UNFCCC) conferences, held in Cancun (2010) and Durban (2011), set a goal of jointly mobilizing climate-change financing of $100 billion annually by 2020 from both public and private sources. An agreement is yet to be reached on how these funds will be mobilized and managed. 5. While the financing landscape is evolving rapidly, it remains complex and fragmented. Apart from the expanding sources of climate finance, a wide variety of financial instruments exist and their number is increasing. These include market-rate and concessional loans; equity investments; grants; carbon finance; risk-mitigation instruments, including guarantees; and such domestic fiscal measures as green subsidies and carbon taxes (Figure 1). Figure 1. Dimensions of Climate-Change Finance7 6. The amount and timing of new and additional sources of climate finance and the forms it will take are, however, uncertain. Also unclear is whether recipient countries can put together a sufficient number of attractive projects and meet accreditation standards for certain types of climate finance. In addition, many LAC governments lack the capacity to manage the fiscal aspects of green public finances. On the one hand, this produces organizational inefficiencies and, on the other, it prevents LAC governments from tapping the available financing instruments. In some cases, vocabulary and concepts used in the relevant government agencies--typically, ministries of finance and environment–differ, which hinders coordination between these ministries. 7 Buchner, Barbara, J. Brown, and J. Corfee-Morlot, 2011, Monitoring and Tracking Long-Term Finance to Support Climate Action, OECD Publishing/IEA, Paris 2 II. Global Landscape of Climate Finance 7. Within the UN Framework Convention on Climate Change (UNFCCC) developed countries, at the 15th session of the Conference of the Parties in Copenhagen in December 2009, pledged to mobilize $30 billion between 2010 and 2012 in climate financing to help developing countries. A goal of jointly mobilizing $100 billion annually by 2020--from both public and private sources--was also agreed and later affirmed in the Cancun agreements. This financing is to be channeled through the Green Climate Fund (GCF), established in 2011 to manage a large proportion of that aid. Frustration with existing financial instruments of the UNFCCC and other multilateral and bilateral channels of climate finance prompted parties to create the new GCF, which is intended to become the main channel for public climate finance. A goal of the GCF is to maximize the impact of funding for both adaptation and mitigation by financing a paradigm shift towards low carbon and climate resilient development. The GCF is not likely to be able to provide funding before 2014. It remains unclear how much money it will have access to and how it will mobilize funds from the private sector. GCF funding is intended to support concrete mitigation actions by developing countries implemented in a transparent way. 8. Global climate finance, estimated at $97 billion in 2009, comes mainly from private sources. Indeed, the volume of private climate finance outnumbers public finance by nearly three to one: $55 billion versus $21 billion.8 Private financing takes the form of global capital market flows (debt and equity), voluntary contributions, and philanthropy. Private investors include individuals, private equity firms, and large institutional investors, such as pension funds and sovereign wealth funds. Financing for Mitigation 9. Significant part of the public finance flows for climate change focus on mitigation, which has the potential to reduce substantially GHG emissions. Most financing for mitigation has been channeled to such fast-growing, emerging economies as Brazil, China, India, Indonesia, South Africa, Turkey, and Mexico; to countries that account for a large share of future demand for energy; or to countries in which substantial deforestation and land conversion is occurring, and thus have large GHG mitigation potential. It is also easier to design viable investment and achieve economies of scale in these larger economies because they offer relatively greater domestic capacity to plan and implement programs. Many of these countries have also taken steps to enable private sector participation in the energy sector. 10. In contrast, the least developed countries (LDCs) generally have lower mitigation potential in the near term. In some LDCs, emissions from forests and land use are more significant than emissions from energy, and poverty and subsistence activities are a substantial 8 Buchner, Barbara, and others, 2011, The Landscape of Climate Finance, Climate Policy Initiative (CPI), Venice. This and all other figures in this paragraph are from The Landscape of Climate Finance and refer to the year 2009/10 3 pressure on existing forests. Greater access to mitigation finance could, however, help LDCs explore low-carbon development options that allow them to avoid the carbon-intensive growth trajectories followed by the more advanced economies. Financing for Adaptation 11. Climate change adaptation attracts finance from a range of sources. The most visible investments are financed through such public finance instruments as grants and concessional loans. These are provided e.g. by bilateral and multilateral institutions, and through voluntary contributions. So far, activities for adaptation represent a small share of funding in Latin America. However, Ecuador, Nicaragua, and Honduras have been early beneficiaries of the Adaptation Fund. Lately the Pilot Program for Climate Resilience of the CIF has been increasingly active in Latin America9. Bolivia, for example, received recently $86 million based on a national resilience plan as a basis for financing. Regional programs for the Caribbean countries also received $33 million for adaptation program. 12. Private financing for adaptation is less well understood. It is often difficult to identify interventions that definitively count as adaptation activities and are closely linked to development activities.10 This makes it harder to classify private-sector climate-proofing activities as adaptation-related investment in such vulnerable sectors as infrastructure, agriculture, water, sanitation, health, disaster prevention, and preparedness. Furthermore, many countries most vulnerable to the effects of climate change are the least-developed countries, whose vulnerability arises from the weaker capacity to adapt, the sensitivity to climate factors, and the exposure to climate change.11 13. The Adaptation Fund was set up under the Kyoto Protocol and officially launched in 2007. Its purpose is to finance adaptation projects and programs in developing countries vulnerable to adverse effects of climate change. A key innovation of the Fund is that it allows direct access to climate finance to developing-country-based institutions. The National Implementing Entity (NIE) accreditation process, however, can be cumbersome and time consuming and the level of financing available through the Adaptation Fund has been relatively small. Also, the experience of the Adaptation Fund shows that requiring agencies to meet high fiduciary standards does not necessarily strengthen national financial management; it may actually restrict access if support is not available to help national institutions meet such standards. 9 Alice Caravani et al in ODI Climate Finance Fundamentals Brief. November 2011 10 The MDBs have established a working group to develop common guidance on how to identify investments in adaptation in 2012. 11 Fussel, H.M., 2007, Vulnerability: A Generally Applicable Conceptual Framework for Climate Change Research, Global Environmental Change 17 (2), pp. 155-67. 4 Funding for Countries with Large Forests and Pristine Ecosystems 14. The UN program for Reducing Emissions from Deforestation and Forest Degradation (REDD) in developing countries was launched in 2008 and seeks to support up to 40 countries during 2011-15.REDD creates an incentive for developing countries to protect and better manage and use their forest resources; REDD+ strategies go beyond deforestation and forest degradation, and include the role of conservation, sustainable management of forests, and enhancement of forest carbon stocks in reducing emissions. The REDD seeks to stabilize the atmospheric concentration of greenhouse gas (GHG) emissions through market mechanisms. REDD strategies aim to make forests more valuable standing as they are than being cut down by creating a financial value for the carbon stored in trees. Once this carbon is quantified, REDD involves developed countries paying developing countries carbon offsets for their standing forests. REDD is currently funded by bilateral donors and the European Commission. And while there is significant interest in the prospect of long-term finance for REDD+ activities from the private sector, it is uncertain whether and how such financing will be delivered. 15. The World Bank also recognizes the importance of helping countries with forests and administers a Forest Carbon Partnership Facility (FCPF) to reduce emissions from forests. And some countries also contribute to help forest-rich countries. Norway, for example, uses a performance-based approach under which it makes substantial bilateral climate finance commitments through its International Forest Climate Initiative, including for results-based performance on REDD+ in a small number of key forest-rich countries such as Brazil, Indonesia, Guyana, and Tanzania. Public Sources of Finance 16. Most public sources of climate funding come from development banks, UN agencies, and bilateral aid agencies ($39 billion), with bilateral sources playing a much larger role ($24 billion). Public climate finance is largely disbursed through bilateral and multilateral financial institutions and government agencies, rather than directly from governments to end-users. Important players in climate finance in the region include the Inter-American Development Bank (IDB), the World Bank, the MDG Achievement Fund (MDG-F), and increasingly bilateral contributors. The UNFCCC report suggests that by 2010 LAC countries had received $421.92 million from Germany, France and Japan12. 17. The Global Environment Facility (GEF) is the largest source of grant-financing resources for mitigation. In the LAC Region the biggest recipients from GEF fund are Mexico, Brazil, Argentina, Peru, Chile, Colombia and Nicaragua. Cumulatively these countries received US$379 million for mitigation projects, which constitutes 13 percent of the total GEF financing envelope of US$2.9 billion. The remaining LAC countries received only 2 percent of 12 Alice Caravani et al, Climate Finance Fundamentals. November 2011 5 GEF resources. The co-financing of GEF financed projects in LAC has six times increased the amount of financing for mitigation bringing it to a total of US$2.6 billion. Mexico leads in LAC as the biggest recipient of GEF financing in the Region with the total GEF financing of US$158 million and co-financing for the same projects amassing to US$913 million. 18. Carbon finance, or the sale by governments of carbon offset credits to polluters, plays a relatively small role globally, totaling about $2 billion. Dedicated climate funds constitute a small but growing source of finance ($1.1-$3.2 billion). 19. The public sources and instruments of climate finance are numerous. They can be characterized as “climate-specific� or “climate-related.� Climate-specific sources include climate funding or carbon offset instruments provided by the GEF, while climate-related sources and instruments include multilateral banks’ Development Policy Loans (DPLs). DPLs aim to help borrowers reduce poverty through policy and institutional measures that promote growth and boost the incomes of the poor. They may only indirectly help countries lower their GHGs by supporting policies that build the capacity for environmental regulation. The World Bank, for example, has stepped up its policy lending to LAC through DPLs (e.g., Brazil, Mexico, Peru, and Colombia) to support a wide variety of energy, forestry, transport, extractive, and agriculture policy reforms. The Bank’s $501 million DPL for Mexico was approved in 2008 in light of the Mexican government’s high capacity level and its steady efforts to expand that capacity. The DPL supports the government’s efforts to mainstream climate-change concerns into public policy by improving its analytical capacity for policy responses, forming an inter-secretarial commission on climate change to support a national climate-change strategy, and integrating climate-change consideration in sector programs. 20. Funds available to address climate change are generally of two types: reimbursable and non-reimbursable. Countries grappling with serious debt problems and lacking financing for climate change generally seek non-reimbursable financing. The criteria for receiving these funds are challenging for some developing countries. They include reducing GHG emissions, strengthening adaptation, reducing the vulnerability to climate-change effects, and contributing to sustainable development. Some donors may also encourage recipients to attract private investment, develop local capacities, reduce poverty, and expand the role of women in projects. It is acknowledged that comprehensive climate change programs need to tackle links between information and decision-making, besides adaptation and mitigation.13 Public International Sources 21. Public international sources of climate funding include the following: 13 Walter Vergara, 2008, The climate change program in LAC. Use of the earth simulator. Powerpoint Presentation. World Bank. January 17. 6  Bilateral aid agencies, including foreign governments and entities, such as the European Commission and funds sponsored by Australia, Germany, Japan, Norway, and the United Kingdom. The Swiss Cooperation Fund, for example, seeks to enhance the capacities of local governments in LAC to deal with climate-related disasters and enhance the roles and functions of local governments in creating climate-friendly investments. And the Nordic Development Fund has an international project to explore ways to integrate mitigation and adaptation goals in the context of urban planning, and it is attracting support from such other sources as the IDB. The government of Japan also sponsors a program to strengthen public infrastructure in recipient countries, making them more resistant to the effects of extreme weather. Germany’s International Climate Initiative seeks to promote a climate-friendly economy while Australia’s International Forest Carbon Initiative seeks to cut forest emissions.  Multilateral institutions, such as the World Bank, the International Finance Corporation (IFC), the Inter-American Development Bank (IDB), the European Union, the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank (AsDB), and the African Development Bank (AfDB);  Dedicated funds, which address specific climate-change challenges. These include the Pilot Program for Climate Resilience (PPCR), the Least Developed Countries Fund (LDCF), and the Special Climate Change Fund (SCCF). Stakeholders in these funds typically include multilateral development banks, the United Nations and UN agencies, the Global Environment Facility, the UN Framework Convention on Climate Change (UNFCCC), non-governmental organizations (NGOs), indigenous peoples, private- sector entities, and scientific and technical experts.  The Climate Change Adaptation Fund, created under the UNFCCC is designed to finance concrete climate change adaptation projects and programs based on the needs, views and priorities of developing country signatories to the Kyoto Protocol. The World Bank serves as trustee for the Adaptation Fund and the Global Environment Facility (GEF) provides secretariat services. The financing from the Adaptation Fund is on a grant basis. The Adaptation Fund (AF) can be accessed either through a National Implementing Entity accredited by the Adaptation Fund Board or multilateral implementing entities, which include multilateral organizations and regional development banks, accredited by the AF Board.  Carbon finance refers to carbon credits for reducing GHG emissions. The buying and selling of carbon credits takes place among a wide variety of actors, including developers of emission reduction projects, banks and brokers, and market makers and exchanges. Uruguay, for example, has moved quickly to secure innovative financing through the carbon market, with World Bank support through the World Bank’s Carbon Finance Assistance Program. 7 Public National Sources 22. Public national sources of climate finance are nationally-owned and driven funds— established in developed and developing countries--that help countries gather climate finance from several sources, blend them together, and monitor and evaluate their use. Countries can thus direct the funds to activities that achieve grass roots results. Such national sources include environmental taxation (e.g., carbon taxes), removal of subsidies (particularly for energy), carbon markets, and cap-and-trade emissions trading systems. 23. Many developed countries have established dedicated climate finance initiatives, often managed by their development assistance agencies with input from agencies overseeing climate change and environmental activities. A growing number of developing countries have also established funds within their national institutional structures that can support climate change activities. These funds take several forms and are funded through a variety of sources that may include international finance from developed countries as well as domestic budget allocations. Private Sources of Financing 24. Many public climate funds have the express goal of mobilizing private financing, partly because public sources are constrained by budget deficits and limits on ODA. The Clean Technology Fund of the Climate Investment Funds, for example, focuses on leveraging private investment. It has supported a large number of projects to extend lines of credit to financial intermediary institutions in developing countries to invest in renewable energy and energy efficiency projects. Local financial institutions are assumed to have a better understanding of the private sector and be better placed to identify local investment opportunities, especially with small and medium-sized enterprises. 25. Private debt and equity financing tends to be heavily concentrated in a relatively small number of countries, mainly the more advanced emerging economies, while the least developed countries receive less than 3 percent of foreign direct investment.14 By some estimates, only $24 billion of more than $200 billion of investment in sustainable energy in developing countries in 2010 was invested outside China, India, Brazil, Mexico, and Turkey.15 In turn, private investment in some sectors that are central to climate-compatible development is difficult. Attempts to reform the water sector to allow private sector participation in many developing countries, for example, have not always proved economically or politically 14 Atteridge, Aaron, 2011, Will Private Finance Support Climate Change Adaptation in Developing Countries? Historical Investment Patterns as a Window on Future Private Climate Finance. Stockholm Environmental Institute Working Paper. Stockholm, Sweden. 15 Robins, 2012, Long Term Finance for Climate Action. HSBC Climate Change Competence Centre. http://unfccc.int/files/cooperation_support/financial_mechanism/long-term_finance/application/pdf/nr_long- term_finance_oct_2012_fin_saic.pdf . 8 attractive. Many developing countries and NGOs believe that climate finance should largely come from public sources and attract private finance as co-finance or leveraged finance, given the high costs of climate change. 26. A country’s ability to attract private climate finance seems to be correlated with its ability to attract foreign direct investment more generally. This ability is based on the ease of doing business in the country and its overall policy, regulatory, and business environment, and competencies and capacity to deliver results (considering resources, technology, skills, operations and management). Private finance responds to existing and forecasted short-term market conditions, which are shaped by domestic policy. Private investment often results from underlying market structures that allow private companies and other actors to participate in relevant sectors as service providers or investors. 27. In this regard, the Clean Development Mechanism (CDM),16 one of the mechanisms incorporated into the Kyoto Protocol, has helped mobilize foreign direct investment in climate mitigation in developing countries by providing commercial incentives for the private sector to invest in mitigation projects. China’s experience with the CDM offers lessons for other developing countries. It has adopted a number of proactive clean-energy measures that target financing from the CDM and CERs (Certified Emission Reduction credits). As a result, it has been the major beneficiary of the program. As of September 2012, 4,546 projects were registered under the CDM, of which 50 percent were located in China. The Appendix 1 describes the experience of CDM in China. Public and Private International Instruments 28. A wide range of climate-change financing instruments have emerged and more are being developed. But they have arguably not been widely used, among other factors, because of LAC finance ministries’ lack of knowledge of available opportunities, uncertainty about their functioning, and insufficient appreciation of their value added. At the same time, LAC governments are facing both internal and external pressures to efficiently manage public finances to respond to the climate-change challenges. 29. These climate finance instruments include:  grants from donors, the GEF, and other environment facilities and funds;  loans from international financial and multilateral development institutions (e.g., World Bank, IDB, International Monetary Fund); 16 The Clean Development Mechanism (CDM) allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one ton of CO2. These CERs can be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol. The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction limitation targets. 9  carbon finance for developing countries that reduce GHG emissions;  green bonds may be issued by, for example, the World Bank, governments, and corporations. “Green infrastructure� bonds are issued to refinance and operate low- carbon infrastructure;  emissions trading refers to country signatories to the Kyoto Protocol17 that allow countries with emission units to spare--emissions permitted them but not "used"-- to sell this excess capacity to countries that exceed their targets;18  private investment, including equity, and public-private partnerships;  guarantees, including risk guarantees to support clean energy technologies; and  related World Bank instruments and knowledge products. 30. In general, a mix of instruments is required as individual countries’ needs differ, reflecting different priorities in mitigation, adaptation, institutional capacity, and financial situations. From a fiscal perspective, climate-change financing instruments fall under three categories: 1. Public expenditure instruments provide incentives for greener actions, including, for example, subsidies, grants, and tax allowances. 2. Revenue-generating instruments seek to create a culture of payment for polluting; they include taxes, charges, and fees. 3. Budget-neutral instruments include, for example, deposit and refund systems (recycling) and distributive credits (e.g., related to waste management).19 31. In spite of a great variety of the climate change related funds, the access to international financing remains a challenge. It is important to recognize that the demand for climate financing is far larger than the supply of funds, which is quite limited. Even when countries are trying to access these funds, e.g., PPCR, Adaptation Fund, FCPF, etc., the available demand by far outstrips the current supply. Even if countries may apply for the funds, these may not be available to accommodate the demand. Therefore, the biggest dedicated funds, such as CTF and especially PPCR, actually selected the recipient countries based on an established and agreed criteria. The countries of the LAC Region that qualified for the PPCR include Bolivia, Caribbean Regional Track, Grenada, Jamaica, Saint Lucia, and Saint Vincent and the Grenadines. 17 An international agreement linked to the UN Framework Convention on Climate Change. The agreement sets binding targets for 37 industrial countries and the European Community for reducing GHG emissions. 18 This is the case only for the five year period 2008-12; it is not clear how the flexible mechanisms will be structured under the Kyoto successor. 19 From International Institute for Sustainable Development, available at http://www.iisd.org/greenbud/evolutio.htm 10 III. Climate Financing in the LAC Region 32. The LAC region is home to about 8.6 percent of the world’s population and accounts for some 8.8 percent of global GDP. The region generates about 5.2 percent of the world’s CO2 emissions and accounts for 11 percent of global greenhouse gas (GHG) emissions (Figure 2). One reason for this includes LAC’s record of low carbon development and its relatively clean energy matrix owing partly to changes in land-use policies and deforestation efforts. Still, the region is particularly vulnerable to the effects of climate change owing to its geographic location and reliance on natural resources. Particularly critical for supporting low carbon economic growth are the energy and transport sectors, which represent the bulk of emissions in the region and promote avoidance of deforestation.20 Also land use change and forestry are critical, especially in the countries in the Andean and Amazon sub-regions. In Peru, for example, land use change and forestry are the largest contributors to GHG emissions (73 percent), followed by agriculture (13 percent); the agricultural sector (including land use change and forestry) has tremendous emission reduction potential.21 Figure 2. Greenhouse Gas Emissions in LAC vs. Other Regions CO2 (kt) 2008 12000000 10000000 8000000 6000000 4000000 2000000 0 Source: World Bank data and staff estimates 33. Costa Rica, for example, is also committed to reducing GHG emissions from its forests and has accessed funding from the World Bank’s Forest Carbon Partnership Facility (FCPF). The Bank recently donated $3.6 million to Costa Rica to help it meet its goal of being carbon neutral by 2021—and thus helping mitigate climate change. The plan is to achieve this goal by reducing carbon emissions from deforestation and forest degradation, sustainably managing 20 Walter Vergara, 2008, Ibid 21 World Bank, 2009, Climate Change Aspects in Agriculture. Peru Country Note. World Bank. January 2009. 11 forests, and conserving and enhancing forest carbon stocks, while accessing international financial incentives for local forest users. Costa Rica also offers payments for ecosystem services to induce conservation while compensating those who bear its costs. These approaches offer significant potential for other LAC countries with large forested areas. 34. Estimates differ on how well LAC, as a region, does in accessing global climate finance. One source22 concludes that LAC receives the second highest level of climate funding from public bilateral and multilateral sources (Tables 2 and 3), following Asia, which is doing better, especially as a recipient of bilateral funds. Table 2. Recipients of Multilateral Finance in LAC vs. Other Regions, 2009-10 Recipient region Million USD Percent Asia 2,742 26 Latin America and Caribbean 2,402 23 Europe and CIS 1,987 19 North & Central America 1,566 15 Middle East & North Africa (MENA) 1,055 10 Africa 435 4 Oceania 55 1 Unspecified 219 2 Total 10,460 100 Source: Buchner, Barbara, and others, 2011, The Landscape of Climate Finance, Climate Policy Initiative (CPI), Venice Table 3. Recipients of Bilateral Finance in LAC vs. Other Regions, 2009-10 23 Recipient region Million USD Percent Asia 8,660 40 Latin America 5,355 25 North Africa and Middle East 3,028 14 Other Africa 2,558 12 Oceania 182 1 Caribbean and Central America 155 1 Europe 84 0 America 32 0 Trans-regional / Unspecified 1,620 7 Total 21,674 100 Source: Buchner, Barbara, and others, 2011, The Landscape of Climate Finance, Climate Policy Initiative (CPI), Venice 22 Buchner, Barbara, and others, 2011, The Landscape of Climate Finance, Climate Policy Initiative (CPI), Venice. This and all other figures in this paragraph are from The Landscape of Climate Finance. See the Appendix A and H with the details and the formula used for the calculations. 23 Ibid. 12 35. Another source, however, contradicts these estimates while underscoring the difficulty of citing authoritative data on climate financing in the LAC region. 24 According to this source, the LAC region does poorly in accessing global climate finance. It received just $930 million in bilateral and multilateral climate financing between 2004 and October 2011 through dedicated climate funds.25 If this figure for climate-specific funding is correct, it would represent only about $116 million annually for the entire LAC region. This would constitute less than 5 percent of the annual estimates of Barbara Buchner and her colleagues. However, other climate related financing is available to the region (Annexes I and II) from the international financial institutions and bilateral donors. Matching Climate Challenges with Financial and Development Resources 36. Another way to visualize countries’ challenges of accessing climate finance is to compare the challenges faced by countries with the appropriate financial and development resources to meet these challenges (Table 4). Table 4. Key Climate Challenges and Available Resources to Address Them26 Climate Challenge Financial and Development Resources Low awareness, capacity, and experience with Building an appropriate enabling low-carbon opportunities and with access to environment: climate finance resources and instruments. Global Environment Facility (GEF) Misaligned, weak, or absent regulation and Trust Funds, such as the Energy Sector incentives, such as the absence of an Management Assistance Program (ESMAP) adequate, long-term, and predictable price for carbon; subsidies that create adverse Bilateral donor funds incentives; or the lack of a regulatory Development Policy Operations (DPOs) framework for renewable energy expansion. Strategic Environmental Assessments (WB) Providing investment finance and leveraging Chronic lack of long-term funding, such as further resources: the high cost of capital or low liquidity in Global Environment Facility (GEF) domestic financial markets. Clean Technology Fund (CTF) 24 Climate Funds Update, a joint initiative of the Overseas Development Institute and the Heinrich Boll Foundation. 25 Caravani, Alice, and others, 2011, Regional Briefing: Latin America, Climate Funds Update, Washington, p. 1. Available at www.climatefundsupdate.org 26 These refer to international public climate change financing instruments that are complementary to other e.g. private and domestic sources. Out of the active World Bank lending portfolio to the LAC region in November 2012, 51 percent goes to Sustainable Development Including projects in agriculture and rural development, energy, environment, global ICT, infrastructure, oil, gas and mining, social development, transport, urban development and water. 13 Carbon finance (revenue enhancement) World Bank (IBRD) or International Development Association (IDA) Providing guarantees or risk coverage: Global Environment Facility (GEF); risks associated with operation and financing of new technologies. High (perceived) risks, such as strategic, Clean Technology Fund (CTF); partial risk country, commodity price, technology, or guarantees focus on technological uptake. operation risk. Multilateral Investment Guarantee Agency (MIGA); country or political risk. World Bank Group (including IBRD, IFC) Guarantees and Structured Finance Source: Richard Hosier and a team of authors in the World Bank Environment Department.27 37. The tabular data above, however, are limited in that they list funding sources associated mainly with the World Bank (e.g., even independent multilateral funds, such as the GEF, have historically been housed in the World Bank or relied on it to serve as a trustee). The data also focus on mitigating climate change, and therefore on mitigation finance, which in turn centers on energy efficiency, renewable energy, and such other challenges as reducing deforestation. Adaptation to climate change, on the other hand, and its accompanying challenges -- be they technological, institutional, or financial -- are largely absent. (Annex II provides a more comprehensive listing of funding sources not affiliated with the World Bank, as well as those focusing on adaptation.28) Regional Disparities 38. Any discussion of the LAC region as a whole needs to acknowledge the important disparities among countries within the region, both with respect to their economic performance and environmental problems. Disparities in emissions of GHGs, for example, are considerable and typically reflect differences in economic size and growth patterns (Figure 3). 27 Richard Hosier and others, 2010, “Beyond the Sum of Its Parts: Combining Financial Instruments for Impact and Efficiency,� World Bank, Issue Brief No. 3, June, Table 2, p. 4 (table modified by present author). 28 Ari Huhtala and others, “Climate Finance in the Urban Context,� World Bank, Issue Brief No. 4, Nov. 2010, Annex, pp. 10-11 (table modified somewhat by present author). 14 Figure 3. Greenhouse Gas Emissions in LAC: Top 10 Co2 (kt) - 2008 500000 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 Source: World Bank data and staff estimates 39. The concentration of GHGs in a relatively small number of LAC countries suggests differing climate challenges and priorities within the region. The high-emitting countries, for example, may need to focus on both mitigation and adaptation, while the low-emitting countries may be more concerned with adaptation. Data for the top 10 GHG emitters, when compared with the largest economies in the region (Figure 4), show a strong correlation between the size of an economy and its GHG emissions. Figure 4. LAC Region: GDP Distribution 29 2.5E+12 USD million 2E+12 1.5E+12 1E+12 5E+11 0 Source: World Bank data and staff estimates 29 2011, World Development Indicators, World Bank. 15 40. In considering the relationship between economic output and emissions of GHGs, a related question arises: which countries are applying for, and receiving, climate financing? A look at GEF data reveals climate funding levels for LAC countries that mirror the countries’ level of economic development (Figure 5). The data presented below reveal large disparities in the distribution of climate finance within the LAC region, begging the question: why do the larger countries30 in LAC receive more climate financing? Source: Yu and Miller, IDB, 2011. 41. A preliminary analysis of the data on LAC countries’ access to climate change financing suggests several hypotheses:  Larger countries are more industrialized and offer greater potential to reduce GHGs on a large scale. According to one study, five large countries--Brazil, Chile, Colombia, Mexico, and Peru---receive 69 percent of all bilateral and multilateral finance for LAC.31  Although the relationship between the climate financing received and the quality of their public sector management systems is more difficult to establish, analysis points out to the positive impact of good institutions. The analysis of the indicators for public financial management and environmental governance, based on the World Bank’s Country Policy and Institutional Assessment (CPIA) indicators32, does not show strong correlation 30 in terms of economic size and population 31 Caravani, Alice, and others, 2011, Regional Briefing: Latin America, Climate Funds Update, Washington, pp. 2-3. Available at www.climatefundsupdate.org . 32 The Country Policy and Institutional Assessment (CPIA) assesses the quality of a country’s present policy and institutional framework. The [World] Bank initiated country assessments in the late 1970s to help guide the allocation of IDA lending (concessional lending for low-income countries). The CPIA consists of a set of criteria representing the different policy and institutional dimensions of an effective poverty reduction and growth strategy, including one criterion for Policies and Institutions for Environmental Sustainability. From World Bank, 16 between the quality of environmental governance and the quality of public administration more generally with the cumulative resources that the countries have from various funds (see Figure 3 and 5 in Chapter III). However, a 2003 World Bank’s analysis33 of the role of institutions in environmental management seems to support the link between good institutions and environmental management. The analysis underscores political commitment to environmental issues, availability and quality of data to inform the policymaking process, rules and procedures for involving the public and civil society in the policy making process, the administrative efficiency (status and structure of environmental agency, technical capacity, mechanisms for cross-sectoral coordination), mechanisms for monitoring and enforcing compliance, accountability and public expenditure management and ability to mobilize sufficient financing from various sources.  Some countries with low CPIA scores appear to be better at accessing environmental funds than their better-governed peers. This seems to hold, for example, for Bolivia and Ecuador. Their success in accessing funds may be the result of substantial donor assistance with identifying funds and helping develop and submit funding proposals. In this context, this Policy Note examines climate funds’ application requirements to determine whether they constitute an obstacle, and, if so, how to overcome it (see Annex 4 on applying to climate funds).  Some countries with better governance and environmental governance indicators may have gained access, but the amounts they attract are lower than what regional leaders get. The countries like Belize, Costa Rica, Dominica, Grenada, Panama, and Uruguay access the funds but receive fairly modest amounts. This may reflect either their small size or the ability of larger countries to present stronger applications with compelling justifications. More telling indicators may be derived by looking at, for example, calculating their climate funding as a percent of their GDP, as a share of their annual expenditures, or as an allocation in per capita terms.  Some smaller countries of the Caribbean or in Central America have historically received little or no climate finance in any given funding cycle. This could be attributable to the absence of environmental strategies, lack of awareness of the possibilities, lack of skills to prepare proposals, lack of capacity to implement environmental projects, or other issues. Regional approaches to addressing climate change problems in the Caribbean have been more attractive due to the size of the countries and similarity of problems faced. Country Policy and Institutional Assessments: 2010 Assessment Questionnaire, Operations Policy and Country Services, September 3, 2010, pp. 1, 3, and 30. 33 Lovei, Assessing Environmental Policy, Regulatory and Institutional Capacity. Environment Strategy Note #7, 2003 17 IV. Applying to Climate Funds 42. Several variables are important in formulating effective applications for climate financing. The various steps in the application process typically involve review of the project submitted, initial approval, formal endorsement by the agency, and implementation. Implementation is then followed by supervision, monitoring, and evaluation (Annex IV). The criteria of the GEF and other sources of climate finance typically include proposals that are scientifically and economically sound, have a strong rationale and realistic objectives for the project, the project’s consistency with the donor agencies’ strategies and focal areas, the completeness of the application, and an adequate scale of expected co-financing. 43. The elements that contribute to LAC countries’ success in applying for climate finance include:  In-depth evaluation of, and familiarization with, funding options (e.g., types of funds, their purpose, and qualification criteria).  Understanding the incentives for applying for the funds (given that the purpose of funding is often strictly defined and that most financing is in the form of loans).  Understanding threshold requirements for the capacity of institutions to benefit from financing--including the capacity to prepare applications and assure proper monitoring of projects, as well as a public financial management system that can manage environmental financing and generate reliable reporting.  Being able to formulate effective proposals for funding. Countries can draw on the UN system and multilateral banks can provide technical assistance in this regard, as can civil society groups and academics (Annex IV).  Understanding what successful applicants have done that others have not. V. Factors Enhancing LAC Access to Global Climate Funds 44. To qualify for the increased flows of climate funding, countries must first demonstrate their readiness to absorb it.34 This requires that they (i) assess and articulate their needs and priorities, (ii) understand the costs of mitigation and adaptation, (iii) have capable and well managed institutions that can develop and manage projects; (iv) have robust public financial management systems capable of budgeting and transparent financial reporting, and (v) have effective systems of monitoring results. In addition, a combination of the following factors have been identified as influencing the LAC Region’s access to climate financing: large emission-reduction projects, economic size and energy consumption, environmental policies and institutions and quality of public administration, as explained below. 34 Interview with Philippe Ambrosi, Environmental Economist, World Bank April 6, 2012. 18 Large Emission-Reduction Projects 45. Large countries are likely to have larger project with environment components that attract funds. As noted earlier, the five LAC countries with relatively high GDPs have attracted by far the most funding from global climate funds. Brazil ($94 million), Mexico ($54 million), Peru ($32 million), Colombia ($25 million), and Chile ($18 million), according to one source,35 lead all other countries in their access to global climate funding from dedicated multilateral funds, garnering 69 percent of such funds. 46. Large projects in these countries offer the greatest potential for large-scale emissions reduction; these include Clean Development Mechanism projects with proven methodologies. It has been difficult to effectively target technology projects with a higher risk profile and to target the poorest, often rural, communities and the most vulnerable, but often disenfranchised population groups, such as women or indigenous peoples within countries.36 Economic Size and Energy Consumption 47. The size of the economy and the level of energy consumption is a strong predictor of the amount of allocated financing for climate mitigation and adaptation objectives. A look at the climate funding data in this Policy Note, in conjunction with other variables – such as GHGs, policies and institutions for environmental sustainability, and overall quality of public administration37 – also yields useful insights. Comparing national climate-funding levels with GHG emissions, for example, yields a correlation of 0.9. This suggests a strong relationship between energy consumption and resulting CO2 emissions and the receipt of climate funding. From an environmental perspective this seems logical, and to some extent explains the concentration of the funds toward the region’s largest emitters of GHGs. From the perspective of lower-income countries with unmet adaptation needs, however, such an allocation would seem to require the need for counterbalancing through the creation of a separate funding stream for low-emission economies. Environmental Policies and Institutions 48. Countries with strong environmental institutions and well-articulated environmental policies are more likely to access climate financing. The CPIA indicator on policies and institutions for environmental sustainability also proves telling. For example, the countries attracting the most climate funding nearly all rank in the top 10 regionally, based on this indicator. Although there are some exceptions, as well as other explanatory factors (including GHG emissions), this correlation suggests that stronger environmental policies and institutions 35 Caravani, Alice, and others, 2011: Regional Briefing: Latin America, Climate Funds Update, Washington, pp 2- 3. Available at www.climatefundsupdate.org . 36 Ibid, pp. 3-4. 37 Drawn from the World Bank’s CPIA indicators 19 can attract greater climate finance. This finding is supported by climate and development professionals interviewed for this Policy Note (Annex IV). 49. Nonetheless, a wide range of smaller countries (e.g., Costa Rica, Uruguay, and Panama) with strong environmental policies do not seem to benefit from greater climate funding. This would seem to suggest that, for most countries with relatively low GHG emissions, the existence of strong environmental policies and institutions alone is not sufficient to attract international public climate finance. Quality of Public Administration 50. Finally, the quality of public administration is just one, but not the decisive factor. Even if the opinions of development and climate specialists interviewed for this Policy Note suggest that sound public administration and financial management are important for securing climate funding from international sources – this causality seems difficult to prove based on the correlations of the CPIA indicators, GEF funding and CO2 emissions. Among the various CPIA indicators, both indicators - those representing the overall quality of public administration and the quality of budget and financial management - have the same correlation (0.4) to the receipt of climate funding. This correlation, however, exceeds that for other common CPIA variables, such as property rights and rule-based government (which, for countries in the LAC region, has a correlation to climate funding of just 0.1), and transparency, accountability, and corruption in the public sector (which has a correlation to climate funding of 0.2). The correlation analysis suggests that although public institutions are important for a successful access to environmental finances, these factors interplay with other factors discussed in the following section. A Combination of Factors 51. For countries with smaller economies, access depends on a combination of variables rather than any single one. In Bolivia, for example, a combination of demographics, environmental characteristics, economics and governance challenges, high levels of poverty, unsustainable natural resource use, and high levels of vulnerability are responsible for its relative success in accessing international climate funding. The country accessed $13 million from the GEF during 2006-10 and $6.9 million so far during 2010-14 (the current GEF funding cycle). El Salvador, on the other hand, has accessed just $3.5 million during 2006-10 and $1.6 million so far in 2010-14. Country Access to Global Climate Funds: Mexico, El Salvador, and Bolivia 52. Based on two case studies for Bolivia and El Salvador and some specific examples from Mexico, some generalizations can be made about how individual country practices can help or hinder access to global climate funds. 20 53. Mexico’s successful access underscores the importance of strong political and institutional commitment and capability for addressing climate change. The country has also long recognized the multi-sector dimension of the climate challenge, having established an Inter-Sectoral Commission on Climate Change in 2005. The Commission’s purpose is to formulate and coordinate national climate-change strategies and incorporate them into sectoral programs. In 2007, Mexico announced a National Climate Change Strategy to put climate change at the heart of the country’s development strategy. 54. Bolivia has had relative success in accessing climate finance, owing to a combination of factors including demographics, environmental characteristics, economics and governance combined with large environmental challenges, a high poverty level, unsustainable natural resource use, and high vulnerability to climate change. But its public institutions lack the capacity to effectively prepare and follow up on environmental programs and it needs to better demonstrate an ability to use international climate funds more effectively and cost-efficiently. Nevertheless, Bolivia was fortunate to be selected for the PPCR, which creates the opportunity to leverage funds and to attract more attention to the adaptation aspects of Bolivia’s climate change program. 55. El Salvador has received relatively little climate funding, despite its high level of deforestation and vulnerability to climate change. This may be attributable to its weak institutional capacity and coordination, insufficient budget resources to cover requisite counterpart contribution to climate-related projects, and lack of national consensus (and a master plan) for addressing climate change, as evidenced in the case study (see Part II). VI. Conclusions and Recommendations 56. Climate financing for LAC is concentrated in the five countries with the highest GDPs in the region: Brazil, Mexico, Peru, Colombia, and Chile. Smaller countries like Bolivia, Paraguay, and small-island economies get significantly less. This is due partly to their lower emission-reduction potential but also to institutional and policy capacity constraints. It is generally difficult to access financing owing to differences among instruments and eligibility requirements, especially in a fast-evolving environment and with problems in assembling the required data. 57. The recent large increase in climate financing brings with it added complexities. It would be advisable for the LAC Finance Ministries to aim at taking an active role in the debate over a new architecture for climate finance. Furthermore, ideally, countries should be able to identify the funds most suitable for them, attract financing from various sources, blend them, and coordinate the programs funded by them and effectively monitor and evaluate their results. But this demands a wide range of high-quality institutional capacities to manage resources at the national level in pursuing environmental goals. 21 58. Access to climate finance is seen by some as the result of the maturity of a country’s governance systems38. Such maturity includes strategic development vision and planning capacity, understanding the impact of long-term economic and social development on the environment, awareness of environmental impacts on current and future generations, as well as technical capacity of the public administration to budget, implement, and monitor results. 59. In general, countries most successful in attracting multilateral and bilateral sources of climate financing seem to share many of the following attributes:  Good potential for reducing large GHG emissions and implementing projects effectively. This would also include efforts to develop and implement strategies to expand renewable energy sources.  A commitment to addressing climate-change problems. This includes political commitment, which can be evidenced, for example, by a country’s participation in regional and international agreements related to environmental sustainability. Commitment is also demonstrated by national climate-change strategies that set clear priorities over the medium and long term and that are integrated into economic development concerns. Costa Rica has done well in this regard, committing itself to being carbon neutral by 2021 and passing laws (e.g., on solid waste management and banning opencast metal mining) in support of this goal.  The ability to co-finance projects with funding from a range of sources, including a country’s own treasury. Mexico, for example, has been successful in accessing climate finance, partly because it has arranged significant co-financing to combine with GEF and CTF grant and concessional funding. It has also demonstrated the ability to effectively blend these sources. In 2009, Mexico blended financing from its own treasury with parallel loans, grants, and other forms of aid from the GEF, the Inter- American Development Bank, the International Finance Corporation, the carbon market, and other donors. While such blending is challenging, especially for countries with limited capacity, it is important for accumulating sufficient amounts of climate finance.  Institutional capacities to use climate finance effectively. These include adequate public administration capacity and effective governance aimed at creating and implementing laws that protect the country’s environment, and at evaluating their effectiveness. Other capacities include: systematic reporting on environmental conditions; planning and monitoring tools, and the ability to develop baselines for the evaluation of environmental variables; qualified personnel in the relevant ministries and a stable civil service; good governance and an adequate legal and regulatory framework; and effective public financial management. 38 Interviews with several Environment Specialists at the World Bank 22  Consistency in policies (a key requirement of the GEF) as well as the ability to seek synergies by establishing cross-cutting strategies among the finance and other relevant ministries, for example, to monitor and evaluate the use of financing. A presence of a well-articulated mitigation and adaptation strategy in the country and high level leadership in implementing it increases chances of access to climate change financing.  A strong civil society, with a culture of participation to articulate demands, guide government action, and ensure greater transparency. In Bolivia, for example, indigenous organizations, supported by national and international non-governmental organizations (NGOs), defined the climate change position of the Bolivian government and took part in negotiations. This included consulting with a wide range of non- government stakeholders in business, the scientific community, and environmental organizations. And Honduras has created national, regional, and municipal consultative commissions to facilitate the protection of forest resources.  Assembling effective and persuasive project applications by accessing technical assistance and examining the applications of countries that have successfully accessed funding. Countries need to learn from other countries’ experiences with climate-related projects what works and what does not.39  Having a responsible central government entity that serves as a national climate- change focal point may help LAC countries’ ministries of finance to respond to the implementation requirements of environmental funding institutions. Among the responsibility of such an entity would be registering and overseeing the financial execution of pubic investments and ensuring better and more transparent procedures and reporting systems. It would also assess the potential of various financing mechanisms, such as environmental taxes and dedicated contributions, to finance an environmental fund to address future challenges.  Coordinated environmental governance. The climate-change entity would also promote synergies between government institutions dealing with climate-related issues, strengthen opportunities for citizen participation, and improve the information flow to environmental education channels. In El Salvador, for example, a public information access law entered into force May 8, 2012, to guarantee the right of citizens’ access to public information in order to enhance their knowledge and contribute to the transparency of government actions. 60. Given the LAC region’s heavy demands for climate financing in coming decades, and notwithstanding expected increases in bilateral and multilateral sources of funding, private financing will no doubt continue to play the larger role. Private investors manage assets in the trillions of dollars globally and thus constitute a major source of potential climate financing. Accordingly, public actors are increasingly looking to use public funds to leverage private 39 E.g., the Chinese example with the CDM Fund could provide valuable lessons learnt for the LAC countries. 23 capital investment and help develop the capacities of low-income countries to attract markets and private investment flows. Fostering private participation in low-carbon markets can not only address near-term development needs, but can also ensure the longer-term viability of these markets. Ideally, public and private actors need to set up innovative partnerships to increase both private and public flows to address climate change in LAC, as well as elsewhere. These efforts should also include ensuring effective access to climate finance for all developing countries and promoting synergies between development and climate finance. 24 Appendix 1: Clean Development Mechanism in China – Relevant Lessons for the LAC Countries40 This Appendix summarizes China’s example of using the Clean Development Mechanism. While overall, the carbon markets have been in decline in the recent past, the Chinese success story with the CDM offers important lessons learnt. These could be valuable for the LAC countries in their preparations to absorb other types of climate finance in the future. Over the last few years, China has built the most dynamic CDM program in the world. China has built a solid system that not only reduces carbon emissions, but also meets national development targets in the 11th Five-Year Plan including energy security, employment creation, reduction of local pollution, and technology transfer demonstration effects. The CDM, part of the Kyoto Protocol, encourages greenhouse gas (GHG) emissions reduction through the purchase of “carbon credits.� As of March 1, 2010, China was the leading country in terms of the number of registered CDM projects (751 projects, 36.4 percent of the world total), the volume of annual expected certified emission reduction (CER) units (205 million tCO2e, or 59.4 percent of the total registered), and actual certified emissions reductions (CERs) issued (186 million tCO2e, or 48 percent). Another measure of the size of the China portfolio is that the number of cumulative ERs shown in the project design documents of these 751 registered projects through 2012 is 962 million tCO2e (although in reality, not all of these CERs will be issued by that time). The development of projects approved by China’s Designated National Authority (DNA) and still awaiting registration by the CDM Executive Board has been even more impressive. As of March 1, 2010, there were 2,413 DNA approved projects in China, or 1,662 more than have been registered. This represents an enormous backlog. The DNA-approved projects total approximately 450 million in annual expected CERs tCO2e. In terms of the number of registered projects as of March 2010, 49 percent are hydro projects, 22 percent are wind and 10 percent are energy efficiency projects. The distribution is quite different when measured by expected CERs to be generated by 2012 by the 751 projects currently registered: the majority are HFC-23 projects (38 percent), followed by hydro (16 percent), N2O (10 percent), and wind (9 percent). However, if one reviews the entire pipeline of DNA approved projects, the pattern shifts, and hydro projects account for the largest single share in expected annual CERs (28 percent), overtaking the expected CERs to be generated by industrial gas projects. China’s CDM related achievements can be characterized by the following: 40 Information from: World Bank, National Clean Development Mechanism Center, Energy Research Institute of the China National Development, 2010: Clean Development Mechanism in China. Five years of experience from 2004 to 2009. Conference Edition. May. 25 China’s sound CDM regulatory and administrative framework has facilitated the delivery of significant environmental and local economic co-benefits. The Government of China appointed several key administrative institutions to be in charge of supervising the CDM market. The National Leading Group on Climate Change (NLGCC) is responsible for formulating CDM policies and defining standards. It also coordinates the National CDM Board—the location of the Designated National Authority. The National CDM Board reviews and approves CDM projects, and supervises CDM implementation. CDM Centers were created and located throughout the country, and a National CDM Fund further contributes to the country’s effective CDM institutional framework. CDM projects approved by the Designated National Authority have increasingly been in the three national priority areas designed to achieve a more sustainable national development path: renewable energy, energy efficiency, and methane recovery and use. Each of these areas is deemed to have important spillover (or “win-win�) benefits, including: (i) energy security, (ii) employment creation, (iii) reduction of local pollution, and (iv) technology demonstration and transfer. Consistent with its 11th Five-Year Plan, China has steadily broadened its CDM activities away from industrial processes into multiple market areas offering carbon emissions reductions. This steady broadening has enabled China to diversify its carbon markets as well as consider using the CDM for increasingly varied transfers of technology, especially in the energy sector. However, with regard to issued CERs as to date, projects related to industrial processes (especially HFC-23) still dominate, but with a different share of the market: from 77 percent in 2010 to expected 38 percent in 2012. China has steadily expanded the CDM portfolio into the poorer provinces of China, especially in the west. Yunnan, Sichuan and Gansu in Western China and Inner Mongolia and Hunan in Central China, all relatively poor provinces on a per capita GDP basis, are the top five provinces in terms of numbers of CDM projects. China has successfully created the China CDM Fund, with payments from all projects receiving CDM revenues. The CDM Fund is reaching the point where it can begin selecting and financing its own projects in China, a unique accomplishment in a developing country. These contributions are beginning to accrue, and the Fund holds around US$750 million as of April 2010. There is growing awareness of climate change and a commensurate movement toward developing local capacity to take advantage of CDM carbon finance opportunities. Moreover, China is sharing its experience in this regard with other developing countries. 26 References Ballesteros, Athena, Smita Nakhooda, Jacob Werksman, and Kaija Hurlburt, 2010, Power, Responsibility, and Accountability: Re-Thinking the Legitimacy of Institutions for Climate Finance, World Resources Institute. Birdsall, Nancy and Michele de Nevers, 2012, “Adaptation Finance: How to Get Out from Between a Rock and a Hard Place,� Center for Global Development (CGD) Policy Paper 001, February, available at www.cgdev.org. Buchner, Barbara., J. Brown and J. Corfee-Morlo, 2011, Monitoring and Tracking Long-Term Finance to Support Climate Action, OECD Publishing/IEA, Paris. Buchner, Barbara and others, 2011, The Landscape of Climate Finance, Climate Policy Initiative (CPI), Venice. Caravani, Alice and others, 2011, “Regional Briefing: Latin America,� Climate Funds Update, November, available at www.climatefundsupdate.org. Climate Investment Funds, 2009, “Clean Technology Fund Investment Plan for Mexico,� CTF/TFC.2/8, 16 January. De la Torre, Augusto, Pablo Fajnzylber, and John Nash, 2009, Low Carbon, High Growth: Latin American Responses to Climate Change, World Bank. Gomez-Echeverri, Luis, 2010, “National Funding Entities: Their Role in the Transition to a New Paradigm of Global Cooperation on Climate Change,� European Capacity Building Initiative, October, available at http://www.eurocapacity.org/downloads/NFEsPolicyReport.pdf. Hosier, Richard and others, 2010, “Beyond the Sum of Its Parts: Combining Financial Instruments for Impact and Efficiency,� World Bank, Issues Brief No. 3, June. Huhtala, Ari, Stefano Curto and Philippe Ambrosi, 2010, “Monitoring Climate Finance and ODA,� World Bank, Issues Brief No. 1, May. Huhtala, Ari and Philippe Ambrosi, 2010, “Making the Most of Public Finance for Climate Action,� World Bank, Issues Brief No. 2, May. Huhtala, Ari and others, 2010, “Climate Finance in the Urban Context,� World Bank, Issues Brief No. 4, November. Johnson, Todd M., Claudio Alatorre, Zayra Romo, and Feng Liu, 2010, “Low-Carbon Development for Mexico,� Energy Sector Management Assistance Program (ESMAP) Briefing Note 003/10, World Bank, January. 27 Mani, Muthukumara, Anil Markandya, and Viju Ipe, 2008, Policy and Institutional Reforms to Support Climate Change Adaptation and Mitigation in Development Programs: A Practical Guide, World Bank, available at http://siteresources.worldbank.org/EXTEEI/Resources/DCCToolkitCRAlores.pdf. Muller, Benito, 2011, “Enhanced Direct Access, �Submission to the Transitional Committee on the Issue of Thematic Funding Windows (Workstreams I & II), Submitted through the UNFCCC constituency of Research and Independent NGOs, Oxford Institute for Energy Studies, August 10, available at http://unfccc.int/files/cancun_agreements/green_climate_fund/application/pdf/oies_submission _on_ws_ii_and_iii.pdf. Nakhooda, Smita, 2010, “Getting to Work: A Review of the Operations of the Clean Technology Fund,� World Resources Institute Working Paper, November, available at http://www.wri.org/publication/clean-technology-fund-insights-for-development-and-climate- finance. Nakhooda, S. and others, 2011, “The Evolving Global Climate Finance Architecture,� Climate Funds Update, November, available at www.climatefundsupdate.org. Nakhooda, S. and others, 2011, “Adaptation Finance,� Climate Funds Update, November, available at www.climatefundsupdate.org. Nakhooda, S. and others, 2011, “Mitigation Finance,� Climate Funds Update, November, available at www.climatefundsupdate.org. Schalatek, Liane and Neil Bird, 2011, “The Principles and Criteria of Public Climate Finance – A Normative Framework,� Climate Funds Update, November, available at www.climatefundsupdate.org. Schalatek, Liane and others, 2012, “The Green Climate Fund,� Climate Funds Update, February, available at www.climatefundsupdate.org. Stewart, Richard B., Benedict Kingsbury, and Bryce Rudyk, 2009, Climate Finance: Regulatory and Funding Strategies for Climate Change and Global Development, New York University Press. United Nations Development Program (UNDP), 2011, Catalysing Climate Finance: A Guidebook on Policy and Financing Options to Support Green, Low-Emission and Climate- Resilient Development, New York. United Nations Development Program (UNDP), 2011, Blending Climate Finance Through National Climate Funds: A Guidebook for the Design and Establishment of National Funds to Achieve Climate Change Priorities, New York. 28 United Nations Development Program (UNDP), 2011, “Direct Access to Climate Finance: Experiences and Lessons Learned,� November, available at http://www.odi.org.uk/resources/details.asp?id=6150&title=direct-access-climate-finance- experiences-lessons-learned. United Nations Framework Convention on Climate Change (UNFCCC), 2011, Transitional Committee, TC-3/INF.2, “Report on the survey of relevant funds and institutions and lessons learned: A note on the results of surveys and interviews,� August 31 Walter Vergara, 2008: The climate change program in LAC. Use of the earth simulator. Powerpoint Presentation. World Bank. January 17, 2008 Walter Vergara, 2009: Assessing the Potential Consequences of Climate Destabilization in Latin America. World Bank Latin America and Caribbean Region Sustainable Development Working Paper 32 World Bank, 2008: “Development and Climate Change: A Strategic Framework for the World Bank Group,� Report to the Development Committee, October 12. World Bank, 2009: Climate Change Aspects in Agriculture. Peru Country Note. World Bank. January World Bank, 2010, Beyond the Sum of Its Parts: Combining Financial Instruments to Support Low-Carbon Development World Bank, 2010, Development and Climate Change: Stepping Up Support to Developing Countries, A Report on Progress by the World Bank Group, June World Bank, 2010, “Country Policy and Institutional Assessments: 2010 Assessment Questionnaire,� Operations Policy and Country Services, September 3 World Bank, National Clean Development Mechanism Center, Energy Research Institute of the China National Development, 2010: Clean Development Mechanism in China. Five years of experience from 2004 to 2009. Conference Edition. May World Bank, 2012: Inclusive Green Growth in Latin America and the Caribbean World Bank, 2012, Toward a Green, Clean and Resilient World for All, World Bank Group Environment Strategy 2012-2022 Yu, B-K., and Sebastian Miller. 2011, “Climate Change Funds and Implications for LAC Countries and the IDB. IDB Technical Note IDB-TN-289. Washington, DC, United States: Inter-American Development Bank 29 Part II: Case Studies 41 El Salvador: Coping with Institutional and Financial Challenges in Addressing Climate Change 61. This case study describes the current financial-management policy and inter- institutional synergies in the Salvadorian public sphere. Its goal is to improve the country’s access to international climate-change financing--whether grants or loans--to mitigate, adapt, or reduce vulnerability to climate change. We also assess how the existing environmental policy and institutional structure enables the use of climate financing and identify the added benefits for the country of such financing. I. Introduction 62. El Salvador is the smallest country in Latin America. It is located in southwest Central America on the Pacific Ocean coastline and is the only country in the region without an Atlantic coastline. The economy is dependent on agriculture and its geography and topography make it vulnerable to the extreme climate events. By 2011, the population of El Salvador reached an estimated 6,757,408--and with an area of just 20,742 km,2 it is one of the most densely populated countries in LAC. 63. According to data from the Economic Commission for Latin America and the Caribbean (ECLAC), in 2011 El Salvador’s GDP exceeded $23 billion, in 14th place among the 33 countries of LAC.42 Within Central America, the country is the fourth largest economy, just behind Guatemala, Costa Rica, and Panamá. In terms of GDP per capita, however, the Salvadoran economy ranks third in Central America. GDP per capita in 2011 was $2,989, well behind Panama ($7,191) and Costa Rica ($5,526).43 During 2006-11, the growth rate of GDP per capita was 2.4 percent, the lowest in Central America. And during the same period, annual GDP growth averaged 1.5 percent, ranking the country 27th among the 33 countries in LAC. 64. El Salvador has mostly warm weather and a rainy season between May and October. The climate favors a diversity of eco-regions (e.g., tropical forests, wetlands, river basins, savannas, mangroves, and reefs) with different species of flora and fauna. The climate is conducive to agriculture in most of the territory during most of the year. This is why the country has traditionally based its economy on agro-industry activities--mainly coffee and sugar cane, corn, beans, and sorghum. Coffee and sugar are mainly for export and the remaining agricultural products are for-local consumption. The main problem in growing food 41 Bolivia and El Salvador were selected as case studies based on the initial analysis on LAC countries’ access to climate financing relative to country size and the quality of the public management. Both countries appeared to be relatively successful in accessing climate funds relative to their size in the initial analysis. 42 ECLAC 2012 43 ECLAC 2012 30 staples, particularly employing below-subsistence-level agricultural practices, is that arable land is located on steep hills or lowlands. This makes crops vulnerable to landslides and flooding. Moreover, this vulnerability to extreme weather, both in agriculture and among the general population, has been increasing in recent years (Annex 1). II. Environmental and Institutional Challenges Environmental Challenges 65. The country’s small size and high population density, as well as the location of human settlement and housing infrastructure, subsistence-agricultural practices, and the major agro- industries are key determinants of land use. As a result, El Salvador suffers a high rate of deforestation and reduced forest coverage. One of its main challenges, therefore, is to implement the Territorial Land Use Management Law and the National Program for Restoration of Ecosystems and Scenery (Programa Nacional de Restauración de Ecosistemas y Paisajes (PREP). These initiatives will promote reforestation, but not necessarily increase agriculture productivity, delimit areas for the appropriate use of land, avoid further soil erosion, improve groundwater recharge, and increase carbon sequestration. 66. Much of the population lives in low areas or areas susceptible to landslides. And with the more frequent incidence of extreme climate events, a high a percentage of the population is highly vulnerable. Key challenges are to reduce such vulnerability and promote adaptation to climate change. 67. Currently, about 50 percent of the electricity supply is generated using renewable energy, mainly hydro and geothermal. But owing to the financial and economic short-term costs and the nature of these energy sources, El Salvador has not been able, during the last decade, to sustain development of lower-emission-technologies. As a non-oil-producing country, the adoption of development strategies with lower emissions will help reduce dependence on imported fossil fuel. Therefore, finding a development path that generates fewer emissions should be a national priority. Institutional Challenges 68. The capacity of the Ministry of Environment and Natural Resources’ (MARN) is vital given that it is the country’s national climate-change focal point. At present, MARN is going through a restructuring to address the issues of Nationally Appropriate Mitigation Actions (NAMAs) and National Adaptation Programs of Action (NAPAs) as a strategy for its climate- change plan. This effort will obviously need further bolstering with regard to human resources and budget allocations if it is to be implemented properly. 69. A key goal for the El Salvador authorities should be to promote synergies between governmental institutions dealing with climate change; these include the ministries of public works, agriculture, public health, social assistance, and education. Given that the effects of climate change differ for different sectors of the economy and society, a climate-change 31 advisory council could facilitate the exchange of experiences and resources between government institutions and civil society. 70. The government could also usefully expand opportunities for citizen participation and improve environmental information for environmental education channels. As of May 2012, a public information access law entered into force. The law guarantees the right for every person to access public information in order to enhance the transparency of government institutions. This should enable citizens to have more information on which to base better assessments of environmental issues and to promote transparency in its management. 71. Domestic sources of climate financing, such as environmental taxes and dedicated contributions, are important for funding an environmental fund that allows the government to address or solve future problems by mitigating or adapting to climate change. Given the shortage of state resources, local institutions, such as the Foundation for Economic and Social Development of El Salvador (Fundacion Salvadorena para el Desarollo Economico y Social, FUSADES), have proposed introducing environmental taxes but the proposals are still being studied and discussed (FUSADES 2007). III. Key Institutions and Policies to Addresses the Challenges Legal Framework 72. The Constitution of El Salvador’s establishes that: "The State should protect natural resources and the diversity and integrity of the environment, to ensure sustainable development. The protection, conservation, rational use, restoration, or replacement of natural resources is declared as a social interest in the terms established by law…" In addition to the Constitution and international agreements, the national legal tools available to address these challenges are the Environmental Law (Ley de Medio Ambiente, LMA) and the General Regulation (approved in 1998 and modified in 2009).44 This law makes the state responsible for protecting, conserving, and restoring the environment, and defines “environmental management� as “all activities or legal mandates implemented or executed by the state or municipalities in connection with environmental consequence or impact on it." The General Regulation of the LMA designates MARN to implement the provisions of the regulation. To support MARN in implementing its various mandates, the LMA´s General Regulation proposes the creation of a National System of Environment (SINAMA), made up of the environmental units in all ministries, autonomous institutions, and municipalities. MARN is responsible for the coordination of SINAMA (Figure 1). 44 Other legal instruments related to environmental management are control of substances that deplete the ozone layer regulation, wastewaters regulation, environmental quality standards regulation, waste and hazardous substances regulation, integrated management of solid waste regulation, forestry law and its regulation, environmental compensation regulation, natural protected areas law, and prevention and mitigation of disasters and civil protection law. 32 73. One of the requirements for putting SINAMA into effect is establishing within the ministries, municipalities, and autonomous institutions their own environmental units. To date, several of these institutions have not done so and have prevented SINAMA from becoming operational. One of the main reasons, according to the authorities, is the lack of funds and human resources. Policy Framework 74. On May 30, 2012, the government of El Salvador published the Environmental National Policy (PNMA), which stated that it was essential for SINAMA to begin operating in order to implement the national policy. Among other functions, SINAMA, in coordination with MARN, would have the responsibility to develop and coordinate the implementation of national plans for climate change. Similarly, SINAMA would be responsible for promoting the Mitigation-Based on Adaptation strategy, proposed by MARN, as the mechanism for implementing the National Program for Restoration of the Ecosystem and Landscapes. 75. The two main issues raised in the PNMA are reversing environmental degradation and reducing the country’s vulnerability to climate change; and considering ways to move the economy onto a low-emissions development path. 76. Moving onto a low-emissions path does not mean implementing high-cost retrofits of production processes, or using more expensive technologies, but rather ending practices that contribute to GHGs, reducing the abuse of agrochemicals, promoting energy efficiency, and diversifying the energy mix. These actions, considered in the PNMA, should be incorporated both into the NAPA and NAMA. The Technology Needs Assessment (TNA) report has been submitted for approval and is one of the main inputs for elaborating the NAPA and NAMA. Figure 1. Institutions Involved in Developing and Implementing Environmental Policies Development MIREX MINEC MARN Partners: UNDP, MH Autonomous CABEI, IADB MOP Institutions: MAG BCR COMURES representing the MSPAS ANDA 262 Municipalities in the SINAMA MINED CEL country and the rest of Governmental Institutions Source: Ismail Sanchez, analysis of institutions with environmental functions in El Salvador, prepared based on information from the Ministry of Environment and Natural Resources . IV. Access to International Climate-Change Funds Use of GEF Funds 77. El Salvador has accessed relatively little GEF climate funding, drawing just $3.5 million during 2006-10 and $1.6 million so far in the latest GEF funding cycle (2010-14). In 33 contrast, Bolivia received $13 million from the GEF during 2006-10 and $6.9 million so far during 2010-14. 78. El Salvador’s low level of GEF funding can be explained by its ranking on either the GEF Benefits Index (GBI) or the GEF Performance Index (GPI). The GBI measures the country’s potential to reduce GHG emissions (or possible “global environment benefit�) and the GPI measures the country’s capacity to implement projects. Some possible explanations for El Salvador’s low GEF Index ranking are the following: Low GHG emission levels 79. Relatively low GHG emissions are produced by energy sub-sectors suitable for CDM projects, according to the 1994 and 2000 El Salvador GHG National Inventories. For instance, in 2000, GHG Inventory, Energy Industries (Electricity Generation and Petroleum Processing) produced 1.1 million metric tons of CO2eq emissions. The single project in this sector with CO2 emissions accredited at 176,543 metric tons (16 percent of total emissions) has been validated, according to the UNFCCC and CDM. Difficulties in meeting CDM requirements 80. El Salvador has registered several CDM projects, but owing to the difficulties posed by CDM requirements most of these were withdrawn, as indicated in the Climate Change Economy Report, presented by CEPAL.45 Lack of own budgetary resources 81. The government lacks budgetary resources to meet the government counterpart contribution requirements, as necessitated by the GEF for project implementation. Differences in defining environmental measures between the country and funding organizations 82. The country´s new vision for dealing with global-warming effects, defined as “mitigation through adaptation,� does not appear compatible with CDM and REDD requirements. 83. Under the mitigation climate-change category, however, one project has been implemented – the Energy Efficiency in Public Buildings – financed through the GEF´s project grant of $975,000. The main objective of this project was “to introduce energy efficiency measures in existing and new public buildings by creating a conducive policy environment, raising user awareness, developing performance criteria and standards, and implementing a broad energy efficiency pilot within selected public entities.� 45 ECLAC 2011 34 World Bank Climate Investment Funds (CIFs) 84. El Salvador has not received any funding from the World Bank’s Climate Investment Funds (CIFs), while $86 million was recently approved for Bolivia from the CIF’s Pilot Program on Climate Resilience (PPCR). CIF’s Clean Technology Fund (CTF) has approved a $500 million loan for Mexico and CIF’s Forest Investment Program (FIP) also allocated $60 million to Mexico, as well. 85. The reasons for El Salvador’s failure to receive funding from CIFs are explained by the failure to meet a very elaborate and consultative, data-driven selection criteria. The selection was conducted by an independent Expert Group from around the world. Presently, the following countries of Latin America and the Caribbean have been selected for CIF financing: Bolivia, Brazil, Chile, Colombia, Dominica, Grenada, Haiti, Honduras, Jamaica, Mexico, Peru, Saint Lucia, Saint Vincent and the Grenadines and the Caribbean Region generally. 86. One potential source of financing to address climate change is the Green Climate Fund, which is still under evaluation. El Salvador has been participating in preparatory workshops to implement this fund, for which the World Bank plays a trustee role. Inter-American Development Bank 87. In March 2012, the IDB approved a $200 million loan to El Salvador to improve the country’s macroeconomic and fiscal stability and to help it increase its resilience and readiness to adapt to climate change.46 This loan followed a $750,000 grant in 2008 for technical cooperation. The grant was made by the Sustainable Energy and Climate Change Initiative (SECCI) to support the bio-fuels strategy in El Salvador. So far, this contribution has supported the Fuels Division of the National Energy Board (Consejo Nacional de Energía) and the National Center for Agricultural and Forestry Technology (CENTA) in preparing a sectoral analysis and regulatory framework as part of the strategy for bio-fuels development. 88. El Salvador has also received:  $1.7 million from the IDB’s Multilateral Investment Fund (MIF), a multipurpose (i.e., not climate-specific) fund specializing in supporting small and micro enterprises;  $176,000 for the period 2008-12 from the Global Facility for Disaster Reduction and Recovery (GFDRR); and  $7.4 million from the European Commission’s European Investment Bank (EIB) Latin America Investment Facility (LAIF). 46 A summary of the project is: Project ES-L1071: “Comprehensive Fiscal Sustainability & Climate Cha nge Adaptation Program for El Salvador. Project Description: The program has been created to support the consolidation of the regulatory and policy progress the country has reached, as well as to strengthen the government's execution capacity in four specific fields: (i) macroeconomic stability; (ii) fiscal sustainability; (iii) institutions; and (iv) resilience and adaptation to climate change.� Available at http://www.iadb.org/en/projects/project,1303.html?id=ES-L1071 35 Adaptation Fund 89. The Adaptation Fund (AF) is a new source of financing coming from donations by governments, the private sector, individuals, and 2 percent of the share of proceeds on the certified emission reduction units (CERs), issued for projects of the Clean Development Mechanism (CDM). The AF was established to finance concrete adaptation projects and programs in developing countries that are signatories to the Kyoto Protocol and are particularly vulnerable to the adverse effects of climate change. 90. In its first stage, the AF has reserved an amount of $10 million for implementation of environmental projects in El Salvador. In 2010, the country’s public works ministry submitted a Promoting Climate Change Resilient Infrastructure Development in San Salvador Metropolitan Area project. If the project is approved, it will be developed and administered by the public works ministry, and MARN will be a member of the supervisory board that will monitor the fulfillment of project objectives. The cost for this project is estimated at more than $5.4 million. 91. Another project to be funded by the AF, currently in the pipeline, is a National Program for Restoration of Ecosystems and Landscapes (PREP). This project with the indicative cost of $4 million is currently being prepared by MARN. The two projects would exhaust the quota allocated to the country by the AF. Bilateral Cooperation Funds 92. Another source of climate financing is bilateral funding from several countries. For example, in 2011, the public works ministry signed a bilateral cooperation agreement with the government of Japan to develop the project Capacity Building of the Directorate of Climate Change Adaptation and Strategic Risk Management (DACGER). This project seeks to strengthen public infrastructure in El Salvador, making it more resistant to the effects of extreme weather. 93. This cooperation agreement is expected to: improve participants’ skills in protecting hillsides, bridges, waterways, and urban drainage, and update public officials ’ knowledge of risk assessment of public infrastructure, setting priorities and developing medium- and long- term plans to improve the country´s capacity to prevent climate-related disasters. Global Energy Efficiency and Renewable Energy Fund (GEEREF) 94. In 2004, the Directorate General for Environment and Directorate General for Europe Aid Cooperation Office (AIDCO) of the European Commission established the Global Energy Efficiency and Renewable Energy Fund (GEEREF). The GEEREF is a sustainable development tool and a strong support for global efforts to combat climate change. To help the LAC region, the GEEREF created a special fund named Clean Tech Latin America Fund (CTLAF II). Neither the GEEREF nor the Salvadorian authorities have provided any information about the receipt of funds from this source. 36 Energy Environment Partnership with Central America (EEP) 95. The Energy and Environment Partnership with Central America (EEP, http://www.sica.int/energia/) was launched during the UN World Summit on Sustainable Development, in Johannesburg in 2002. The objective of the initiative was to contribute to sustainable development of the Central American countries and mitigate global climate-change effects. This effort is supported by Finland’s Ministry for Foreign Affairs, the Austrian Development Cooperation (ADC), and the European Union (EU) in coordination with the Central American Integration System (SICA) and the Central American Commission on Environment and Development (CCAD). To date, €19.5 million has been allocated. Table 1. Sources of Financing for El Salvador Source of Fund USD Mln. Impl. period financing World Disaster Risk Management Development Policy Loan 50 2011 - 2014 Bank with a CAT DDO (P122640) Disaster Risk Management Development Policy Loan 5 2005 - 2012 with a CAT DDO (P122640) GEF - El Salvador Environmental Services Project 0 2005 - 2012 (P070352) – Specific IADB Project ES-X1004: Geothermal Regional Training 1.4 2012 - Unknown Support Program Project ES-T1147: Geothermal Regional Training 0.824 2012 - Unknown Support Program Project ES-L1071: Comprehensive Fiscal Sustainability & Climate Change Adaptation Program 200 2012 - 2014 for El Salvador Other Bilateral Cooperation 16 2009 – Unknown Sources Multilateral Cooperation 0.59 2009 - Unknown Source: Author’s research, based on publications of the World Bank, Inter-American Development Bank, and Ministry for Foreign Affairs of El Salvador, IADB 2012, MIREX 2010 V. Role of Public Management Systems in Accessing and Absorbing Climate Finance 96. There is no one centralized government entity in El Salvador responsible for managing and administering funds received through bilateral or multilateral cooperation agreements. Except for the contracting of loans, which is regulated in the Constitution, any ministry, autonomous entity, and municipality is free to manage the funds as it sees fit for the fulfillment of its initiatives and objectives. Because of this, each institution has its own agreements with international cooperation agencies, national institutions, and international financial institutions. 97. In June 2009, El Salvador’s foreign affairs ministry sought to change the strategy by organizing and coordinating the management, implementation, and monitoring of the international cooperation aid for the different institutions. The ministry reformed its structure 37 and created a Vice-Ministry of Cooperation for Development (VMCD), whose main mandate is to coordinate, manage, and supervise the implementation of international cooperation projects. 98. During the strategy’s first year of operation (2009-10), the VMCD managed to raise $214.1 million from bilateral sources and $86.5 million from multilateral sources; $16 million from bilateral cooperation and $0.6 from multi-sectoral cooperation was directed to investments related to environmental and climate-change issues. 99. All of these investments were supervised by the VMCD and implemented by different ministries and institutions. The modality of implementation of projects supported by international development partners is still evolving. The efficient use of available funds would depend on clear and efficient procedures for applying, implementing, and reporting on projects’ performance. There is always the alternative of direct negotiation between the government institutions and donors. Finally, in the case of loans, they must go through the Technical Secretariat of the Presidency and the finance ministry to determine whether the loan must be submitted to the legislative assembly for approval (Figure 2). 38 Figure 2. El Salvador’s International Cooperation Funds Management Model Presidency’s Loan Loan Technical Approval Management Secretariat Legislative Assembly Ministry of Finance Ministries Donors Loans Autonomous VMCD Funds Institutions IFI´s Grants Municipalities Funds Availability Need of Funds Direct Negotiations Source: Based on information from the Ministry of Environment and Natural Resources Institutional Framework Related to Accessing and Absorbing Climate Finance 100. As noted earlier, El Salvador has well-defined legal institutional structures related to the environment, in both the LMA and its General Regulation. The MARN is the focal institution for addressing environmental issues. Prior to 2011, MARN focused on two areas: sustainable management of natural resources and support for El Salvador´s environmental management. Lately, a new area, called Strengthening Program for Reducing Risk and Vulnerability Related to the Society and the Environment, was created. These three operational areas clearly set out the priorities for the ministry. 101. To develop activities within these operational areas and to maintain its administrative structure, MARN receives a budget of less than 1 percent of the central government budget. For the sake of comparison, Guatemala assigns more than 10 percent of its central budget to the environment ministry (Table 2). 102. Apart from its budget, MARN also receives donations that are not necessarily included in the budget, since these funds can be administered directly by the donors or by accredited institutions, such as the United Nations Development Program (UNDP). 39 Table 2. Share of MARN Budget in Central Government Budget Compared with Guatemala 2006 2007 2008 2009 2010 2011 Central government budget (USD million) 3,634 3,258 3,624 4,827 3,995 4,863 MARN budget (USD million) 24.9 19.4 8.8 9.1 18.0 15.9 MARN share in central government budget (%) 0.7 0.6 0.2 0.2 0.5 0.3 Guatemala´s Environmental Ministry’s share in 11 11 10 20 - - central government budget (%) Source: Ministry of Finance of El Salvador (http://www.mh.gob.sv) and Ministry of Environment and Natural Resources of Guatemala (http://www.marn.gob.gt ) 103. MARN recently formed a Unit for International Cooperation and Projects (UCIP). The unit, directly attached to the minister, is responsible for assessing the availability of funds, trying to gain access to them, and supervising the implementation of projects financed with these funds. The UCIP works closely with the VMCD to channel international cooperation accessed by other institutions--such as ministries, autonomous institutions, and municipalities-- to the priority areas proposed by the MARN. 104. Although, MARN is not El Salvador’s only institution able to attract or absorb funds for environmental and climate-change projects, it is the designated authority for negotiating and administering most of the funds earmarked for these areas. For example, MARN manages and receives funds from GEF through the World Bank (as one of the GEF implementing agencies); it is also the authority that endorses projects under the CDM and the REDD program. Limits to Borrowing Capacity 105. The kind of funds available to address climate change generally fall under two categories: reimbursable and non-reimbursable. Public or private institutions interested in applying to these funds may have three alternatives: direct negotiation with donors, applying to international financial institutions, and requesting MARN´s endorsement as the designated national authority for the UNFCCC. 106. Projects funded by non-reimbursable funds should comply with some of the following conditions: reducing GHG emissions; strengthening adaptation to, and reduction of, a country’s vulnerability to climate-change effects; and contributing to El Salvador's sustainable development. Some donors may also add other conditions, such as encouraging partners to attract private investment, developing local capacities, reducing poverty, and expanding the role of women in various activities (especially in energy and technology projects). Fulfilling these conditions requires strengthening the institutional capacity of project developers. 107. With regard to reimbursable loans, a public institution that applies for such loans requires a sovereign guarantee, which in turn requires the approval of the legislative assembly. 40 Considering the current level of El Salvador’s debt, this requirement would effectively deny, or greatly delay, the loan’s granting. 108. According to preliminary data from El Salvador’s Central Reserve Bank, central government debt rose to $9.7 billion in 2011, representing 42.4 percent of GDP for that year (Table 3). According to important financial institutions, such as the IMF, the country is reaching its debts limit. Some economic analysts believe that the debt limit has already been reached, since total public debt exceeded 43 percent of GDP in 2007. This partly explains the difficulty of accessing some funds that would require decreasing the debt. Table 3. Salvadoran Central Government Debt, Total Public Debt, and GDP (In billion USD) 2006 2007 2008 2009 2010 2011 Gross Domestic Product (GDP) 18.6 20.1 21.4 20.7 21.4 23.1 Central Government Debt (CGD) 7.0 7.1 7.5 8.9 9.2 9.8 Total Public Debt (TPD) 8.4 8.7 9.7 11.2 11.8 12.9 TPD/GDP (percent) 45 43 45 54 55 56 CGD/GDP (percent) 38 35 35 43 43 42 Source: El Salvador’s M and Central Reserve Bank: http://www.mh.gob.sv and http://www.bcr.gob.sv National Fiscal Context 109. As noted earlier, El Salvador is a country with limited resources. Its main foreign currency earners are exports of textile products, followed by exports of agro-industrial and agricultural products. Remittances from Salvadorans living abroad are the second main source of income. Trends in both exports and remittances are reflected in the behavior of GDP, which has grown significantly in 2011 despite the global economic recession. Except for 2009, GDP, exports, and remittances all rose (Table 4). Table 4. Comparative GDP, Exports, and Remittances (In billion US dollars) 2006 2007 2008 2009 2010 2011 GDP 18.6 20.1 21.4 20.7 21.4 23.1 Exports 3.7 4.0 4.6 3.9 4.5 5.3 Remittances 3.5 3.7 3.7 3.4 3.4 3.6 Source: Central Reserve Bank of El Salvador: http://www.bcr.gob.sv 110. El Salvador’s growth of production and consumption has increased tax revenue. The increase in tax collection is due not only to the increase in economic activity, but also to implementation of tax reforms and improvements in the capacity to collect taxes (Table 5). However, government spending and investment have historically exceeded total income (tax 41 revenue+ non-tax revenue + donations). Part of the increase in government spending is to cover subsidies for liquefied petroleum gas (LPG) consumption, water consumption, public transportation, and electricity. The government has thus had to resort to borrowing money and debt issuance to finance its operations. Table 5. Comparative GDP and Tax Revenue (In billion USD) 2006 2007 2008 2009 2010 2011 GDP 18.6 20.1 21.4 20.7 21.4 23.1 Tax Revenue (TR) 2.5 2.7 2.9 2.6 2.9 3.2 Tax Burden (TR/GDP) in percent 13.4 13.6 13.5 12.6 13.5 13.9 Source: Ministry of Finance of El Salvador and Central Reserve Bank of El Salvador: http://www.mh.gob.sv and http://www.bcr.gob.sv 111. Considering this difficult economic situation, domestic think tanks have proposed expanding the existing fiscal base, which is supported mainly by two taxes; the value added tax47 (VAT) and the income tax (both for individuals and businesses). Given the lack of resources to tackle environmental issues, some of the suggested taxes include taxes on activities that contribute to environmental degradation -- such as the transport sector, industrial production, and waste generation --and creating special contributions to be used to reverse environmental damage.48 One of the main arguments cited by the government for not implementing these fiscal measures is that the introduction of new taxes tends to slow economic activity and discourage domestic and international investment. 112. One of the subsidies that seem to have diminished the deforestation rate in the country was the subsidy for LPG. This subsidy has facilitated access to cleaner fuels for low-income families, thus helping reduce firewood consumption. The deforestation rate is also accompanied by the expansion of city and agricultural areas. It bears evaluating whether the LPG subsidy--which cost the government $94.6 million in 2006 and is estimated to have cost $146.6 million in 2011--responds to the country’s environmental and financial needs. Public Administration Capacity 113. Governance indicators defined by the World Bank measure a country’s public administration capacity. According to these indicators, El Salvador has made significant progress in the areas of voice and accountability, government effectiveness, political stability, and regulatory quality. As to the control of corruption indicator, however, El Salvador has made little progress and has failed in relation to the rule-of-law indicator. 47 Property Transfer and Servicing Tax (Impuesto a la transferencia de Bienes Muebles y a la Prestación de Servicios) Added Value Tax (Impuesto al Valor Agregado) for short. 48 FUSADES, 2007 42 114. An important component of the indicator voice and accountability is citizen participation. In this regard, and in relation to environmental issues, the government has made good progress. For example, the LMA devotes a chapter to the right of people to access appropriate information on the environment. 115. MARN has a directorate for citizen participation that promotes educational activities and environmental awareness, among other things. Beginning in 2009, with the arrival of the new administration, a new process of consultations was launched with different sectors for input to the National Environment Policy (PNMA). When it enters into effect, this policy is expected to have the support of different sectors but, despite important progress, citizen participation and consultation processes still face a number of hurdles. Increasing citizen demands for a better and more sustainable environment would help elevate the role of MARN as the national leader in setting and achieving realistic environmental development goals. Proactive and decisive cooperation of MARN with other ministries -- such as those of infrastructure, transport, and agriculture -- is also very important for addressing citizen needs for clean water, adequate sanitation, treatment of waste water, and fuel-efficient transport. 116. The country’s governance indicator reveals important improvements in government effectiveness. But some reviews cite the need for reliable and accurate indicators to quantify the actual status of the environment and to measure MARN’s effectiveness.49 Overall, institutions remain weak. The government’s capacity to enforce the strategy and legal provisions in the environment area remains weak. And the environmental management system continues to be fragmented, owing to the failure of establish environmental units in all ministries, agencies, and municipalities. The lack of financing or staffing for this purpose may reflect unrealistic planning, which is only weakly linked to budgeting; and insufficient institutions, budgets, and personnel, despite environmental policy being a declared priority. One could reasonably assume that improved links between legislation and planning on the one hand, and budget allocation aligned with robust accountability on the other hand, would result in better environmental management that would enable the country to address more effectively its environmental challenges. 117. Regarding the political stability indicator, El Salvador, after 20 years of right-wing governments, has elected a president considered center-left. But the election revealed uncertainties about the new government’s ability to introduce or change certain environmental policies and observe the obligations implied by the international agreements that El Salvador has signed. After three years under the new regime, the country has sustained its political commitment and support for environmental policies. 49 Some of these reviews are included in the following documents: " Gobernabilidad Ambiental para el Desarrollo Sostenible en El Salvador" (FUSADES, 2007. Pages: 66, 191), and "WB Country Policy and Institutional Assessment - Environmental Governance 2010" (Internal Paper released for the purposes of this study) 43 118. But while the government’s general regulatory capacity has improved, it still needs a stronger capacity to create and implement laws and policies favoring the environment. An example of this is the time taken to launch PNMA, which was under study since 2009. Other examples are the delays in passing water, land use, and territorial development laws. 119. Two areas that deserve more hard work: the rule of law and corruption control. Despite the president's public statements about its commitment to "zero tolerance on corruption" 50 in governmental spheres, the civil society is constantly demanding the enforcement of the environmental laws and the prosecution of offenders and corrupt officials. 120. Apart from governance indicators, other variables can help assess El Salvador’s public administration capacity as follows: Change in Priorities at the Local Level 121. Based on the adverse climate-change effects that El Salvador has suffered in recent years (Annex 1), it becomes apparent that mitigation actions at the global level are not really working for El Salvador. The country should thus prioritize its efforts and resources to achieve environmental improvements locally, and minimize its contribution to global warming and pollution. Landslides, flooding, and damage to agriculture and to the infrastructure clearly signal to the relevant authorities where to concentrate efforts and resources. As a result, MARN, the Ministry of Planning, Ministry of Agriculture, MSPS, Ministry of Public Health and Social Assistance (MSPAS) and other entities have decided to focus on reducing climate- change vulnerability and have taken steps to create adaptation capacities in local communities. These priority changes have not been easy, yet they show determination on the part of the authorities. Leadership Capacity at the Regional Level 122. During the second half of 2011, El Salvador assumed the rotating presidency of the Central American Integration System (SICA). During this period, the Salvadoran authorities played an important role in achieving a consensus to address climate change through adaptation and reduction of the region´s vulnerability to adverse environmental phenomena. The result of this consensus was presented during the last UNFCCC Conference of Parties (COP-17). Obstacles to Accessing Climate Funds 123. Some obstacles to El Salvador’s access of climate-change funds are as follows:  Availability of non-reimbursable funds: The country´s capacity to continue acquiring debt is reaching the debt-sustainability limit recommended by the IMF. Therefore, to address the adverse effects of climate change in the short-term, the country must find non-reimbursable sources of financing. For example, the economic cost of Tropical 50 Press note: "Executive discusses new evidence of corruption", published February 11, 2011, by La Prensa Gráfica. Available on: http://www.laprensagrafica.com/el-salvador/politica/171048--ejecutivo-analiza-nuevos- indicios-de-corrupcion.html. 44 Storm Agatha in 2010 was estimated at $112 million (Adaptation Fund, 2012). To address the emergency needs, the government reallocated funds obtained for other purposes, thus limiting the possibility of continuing previously planned investments.  Political: There are some internal political barriers to accessing climate-change funds when a sovereign guarantee is required. The obstacles or delays arise in the legislative assembly, where no political party has a majority to approve reimbursable loans.  Technical: CDM and REDD requirements, and the size of most of the projects submitted, have prevented projects from being funded. For example, the minimum forest extension required for some REDD projects is 5,000 hectares, a difficult condition for a country the size of El Salvador. VI. Conclusions and Recommendations 124. El Salvador’s top priority is to reverse environmental degradation attributable to climate change. This challenge requires that government institutions (e.g., MARN, the ministry of planning, and the ministry of agriculture) receive greater financial support.  Government representatives, such as the ministers of environment and public works, are raising awareness of the current situation at such international forums as Río+20 and COPs, asking for international support to reduce climate-change impacts.  The current central government debt/GDP ratio indicates that El Salvador is reaching its indebtedness limits.  Non-reimbursable funds (e.g., CDM, REDD, REDD+) require certain conditions, such as additionality and size. These conditions are hard for project developers to meet and, as a result, minimal funds have been accessed.  In some cases, the low level of access to climate funds does not necessarily mean weak management capacity, but rather that the conditions for access do not respond to the country conditions and priorities. 125. In light of these conclusions, we offer the following recommendations to the El Salvador authorities:  In the short term, if non-reimbursable funds are not available, agree with the different stakeholders on questions related to debt sustainability and financial needs to address climate-change effects.  Increase national funding for environmental and climate-change priorities.  Achieve a national agreement and define priorities for the medium and long term.  Be sure that the funds allocated conform to the country's environmental priorities, which are to reduce vulnerability and adopt appropriate adaptation actions.  Continue strengthening institutional structures and further improving strategic planning, managerial, coordination, financial management, project development, and negotiating capacities, especially in the finance and foreign affairs ministries.  Improve the capacities of public officers in the following areas: systematizing environmental information, applying participative methodologies, designing 45 instruments and guidance materials, using appropriate tools to plan and monitor projects, and acquiring negotiation skills. Improving these skills will allow a better identification and evaluation of the NAMAs and NAPAs.  Be sure that all governmental institutions work together and in line with the national strategy to identify suitable sources of funding and to advance the development of projects needed to adapt and reduce vulnerability to the adverse effects of climate change.  Have a master plan for renewable energy and a national environmental policy and implement it to reduce GHG emissions.  Ensure that public institutions dealing with climate-change impacts receive adequate resources to help them implement the Public Information Access Law, thus improving citizens’ participation and motivating people to increase their awareness of the issue. 46 References: El Salvador Case Study Adaptation Fund, 2012, Project/Program Proposal: Promoting climate change resilient infrastructure development in San Salvador Metropolitan Area, available at http://adaptation-fund.org/system/files/AFB.PPRC_.3.6%20Part%202.pdf downloaded May 27, 2012. CPI, 2011, The Landscape of Climate Finance. A CPI Report. A document from the Climate Policy Initiative (CPI). Barbara Buchner, Angela Falconer, Morgan Hervé- Mignucci, Chiara Trabacchi and Marcel Brinkman. Diario Oficial, 2009, Reglamento General de la Ley del Medio Ambiente. Decreto N° 39 (28 de abril). ECLAC, 2012, available on ECLAC website at http://websie.eclac.cl/infest/ajax/cepalstat.asp?carpeta=estadisticas, downloaded May 27, 2012. FUSADES, 2007, Gobernabilidad Ambiental para el Desarrollo Sostenible en El Salvador. Situación, Avances y Desafíos. Document published by the “Fundación Salvadoreña para el Desarrollo (FUSADES)� and the “Consejo Empresarial para el Desarrollo Sostenible.� GEF, 2012, The country portfolio study: El Salvador (2002-2010),�GEF, available at http://www.thegef.org/gef/sites/thegef.org/files/documents/El_Salvador_CPS%20chapter_ 1_Eng_unedited.pdf [downloaded June 2, 2012]. IADB, 2011, Bok-Keun Yu and Sebastián Miller, Climate Change Funds and Implications for LAC Countries and the IDB. IADB, 2012, Project ES-L1071: “Comprehensive Fiscal Sustainability & Climate Change Adaptation Program for El Salvador, available at http://www.iadb.org/en/projects/project,1303.html?id=ES-L1071 MARN, 2012, “El Cambio Climático: una realidad que El Salvador debe enfrentar con estrategias sostenibles�. Ministry of Environment and Natural Resources presentation on May 9, 2012, in San Salvador. MARN, 2012, Política Nacional del Medio Ambiente 2012. Document from MARN, available at: http://www.marn.gob.sv/ MIREX, 2010, Informe: Rendición de Cuentas 2009-2010. Ministerio de Relaciones Exteriores. Viceministerio de Cooperación para el Desarrollo. 47 Acronyms: Case Study on El Salvador AF Adaptation Fund ANDA Administración Nacional de Acueductos y Alcantarillados (National Administration of Aqueducts and Sewerage System) BCR Banco Central de Reserva de El Salvador (El Salvador Central Reserve Bank) CABEI Central American Bank for Economic Integration CCF Climate Change Financing CDM Clean Development Mechanism CEL Comisión Ejecutiva Hidroeléctrica del Río Lempa (Lempa River´s Hydroelectric Executive Commission) CENTA Centro Nacional de Tecnología Agrícola y Forestal (National Center for Agricultural and Forestry Technology) CIF Climate Investment Funds COMURES Corporación de Municipalidades de la República de El Salvador (El Salvador´s Municipalities Corporation) CTLAF Clean Teach Latin America Fund CTF Clean Technology Funds DACGER Dirección de Adaptación al Cambio Climático y Gestión Estratégica de Riesgos (Directorate of Climate Change Adaptation and Strategic Risk Management) ECLAC Economic Commission for Latin America and the Caribbean EIB European Investment Bank FIP Forest Investment Program GBI GEF´s Benefits Index GDP Gross Domestic Product GEEREF Global Energy Efficiency and Renewable Energy Fund GEF Global Environmental Facility GFDRR Global Facility for Disaster Reduction and Recovery GHG Green House Gases GPI GEF´s Performance Index IADB Inter-American Development Bank IFI International Financing Institutions IVA Impuesto al Valor Agregado (Value Added Tax) LAC Latin America and the Caribbean LAIF Latin America Investment Facility LMA Ley del Medio Ambiente (Environmental Law) MARN Ministerio de Medio Ambiente y Recursos Naturales (Ministry of Environment and Natural Resources) MH Ministerio de Hacienda (Ministry of Finance) MIF Multilateral Investment Fund MINEC Ministerio de Economía (Ministry of Economy) MIREX Ministerio de Relaciones Exteriores (Foreign Affairs Ministry) MOP Ministerio de Obras Públicas (Ministry of Public Works) MSPAS Ministerio de Salud Pública y Asistencia Social (Ministry of Public Health and Social Assistance) NAMA Nationally Appropriate Mitigation Actions NAPA National Adaptation Program of Action 48 PNMA Política Nacional de Medio Ambiente (National Environmental Policy) POP Persistent Organic Polluters PPCR Pilot Program of Climate Resilience PREP Programa Nacional de Restauración de Ecosistemas y Paisajes (National Program for Restoration of Ecosystem and Landscapes) REDD Reducing Emissions from Deforestation and Forest Degradation SECCI Sustainable Energy and Climate Change Initiative SICA Sistema de la Integración Centroamericana (Central American Integration System) SINAMA Sistema Nacional de Medio Ambiente (National System of Environment) TPD Total Public Debt UCIP Unidad de Cooperación Internacional y Proyectos (Unit of International Cooperation and Projects) UNDP United Nations Development Program UNFCCC United Nations Frame Convention of Climate Change VMCD Viceministerio de Cooperación para el Desarrollo (Vice Ministry of Cooperation for Development) 49 Bolivia: Facing Challenges in Making Efficient Use of Climate Financing 126. Bolivia has experienced public-management-related constraints that have affected its access to climate financing. The country has been relatively successful in accessing climate finance, relative to other LAC countries with similar institutional indicators. The Bolivian experience can thus provide guidance to other LAC countries on how to maximize the benefits of available financing for adaptation to, and mitigation of, climate change. 127. This case study is also aimed at contributing to:  understanding the incentives, restrictions, fiscal implications, and other factors that countries face when applying for environmental financing;  learning the key requirements for successful applications (e.g., institutional capacity and political commitment);  developing advice on how to benefit from available resources and increase the chances for obtaining green development financing; and  analyzing the effectiveness and efficiency of the use of funds to fulfill a country’s environmental priorities. I. Institutional Challenges 128. Bolivia has a small economy, with GDP in 2011 estimated as $58 billion51 in purchasing power parity and $24.4 billion, according to the official exchange rate. Its economy is comparable with that of Paraguay or Trinidad and Tobago. In 2010, Bolivia was included in the list of middle-income countries with a per capita GDP of $1,900. The country’s population is 10 million, which is smaller than that of Ecuador. 129. Bolivia faces huge problems in reducing poverty; 59 percent of its people are below the poverty line and it is among the LAC countries suffering high levels of inequality. 52 The year 2006 was a political milestone for Bolivia. Strong social demands for full nationalization of hydrocarbon resources and for greater participation of the country’s indigenous majority in the country’s political life supported the election of president Evo Morales and the issuance of a new constitutional text. Rising social pressures favored strengthening the decentralization process (law of autonomies) and the mandate for applying a new economic model emphasizing the state’s central role in economic affairs. 51 http://www.indexmundi.com/bolivia/economy_profile.html 52 Data from the World Bank and the UN Human Development Report indicate that income inequality in Bolivia has been increasing significantly since 1997. As of 2009, Bolivia had the highest income inequality, as measured through the Gini coefficient Index, among the LAC countries. With a Gini Index of 59.2, Bolivia is ranked 7th out of 134 countries with available data. 50 130. The National Development Plan (2006-11) proposed using the revenue from such strategic sectors as oil and mining to promote investment in such job-creating sectors as industry, agriculture, and tourism – which would also diversify the productive matrix. The Plan also suggested mechanisms for reducing extreme poverty, promoting further involvement of deprived indigenous populations, and enhancing the transparency of the public service. 131. Nonetheless, Bolivia remains heavily dependent on natural resources. The mining industry, especially the extraction of natural gas and zinc, currently dominates the export economy. Higher prices for mining and hydrocarbon exports produced a fiscal surplus in 2008. And in 2010, higher world commodity prices generated the largest trade surplus in Bolivia’s history. But a lack of foreign investment in the key sectors of mining and hydrocarbons together with higher food prices, have put pressure on the economy. II. Environmental and Climate-Related Challenges 132. Bolivia is located in central South America, with one third of its territory along the Andes mountain chain and the rest in arid and humid lowlands covered by rainforest and savannas. Because of its physiographic characteristics and climate, Bolivia is one of 15 countries in the world with the richest biodiversity. However, the country faces acute problems with its environment and the condition of its ecosystem, and thus major challenges in pursuing a sustainable development path. Climate change is expected to worsen all of these challenges. 133. Subsistence agriculture and the forestry sectors account for more than 40 percent of employment in Bolivia and are the cause of two thirds of its GHG emissions. Extensive and precarious land-use practices have kept demands for land habitation high, resulting in deforestation and land degradation (about 200,000 hectares a year). The loss of key ecosystem functions and more frequent and intense climate-related events are leading to more frequent and severe climate-related disasters,53 such as floods in the eastern plains. 134. Climate change is expected to further strain the already poor distribution of water resources in the country. Temperature increases along the Altiplano have been reducing rapidly the size and volume of tropical glaciers, and glacier withdrawal is expected to affect important water reservoirs for urban uses and irrigation. Rain pattern changes will further affect the sustainability of already fragile arid and semiarid mountain ecosystems. This will limit drinking water supplies and irrigation systems and make rural livelihoods more vulnerable to drastic environmental change. 53 In the last two decades, climate-related disasters have affected Bolivia´s GDP by 1-3 percent a year, one of the largest impacts in terms of GDP on the continent. 51 135. As a result of these changes in the hydrologic cycle, agriculture and food output are facing increasing difficulties, rural livelihoods are becoming less attractive for rural inhabitants, and increased outmigration is jeopardizing food production systems and raising the risk of food insecurity. 136. Cities have also been experiencing increasing climate-related effects. Water shortages, landslides, and vector-borne disease outbreaks are occurring more frequently. And their added severity has highlighted the extreme vulnerability of principal cities to climate change. III. Access to International Climate-Change Financing 137. Bolivia has been relatively successful in accessing international climate funding, especially GEF resources. Apart from enabling activities that have helped formulate National Communications and National Plans, GEF resources have facilitated co-financing projects in such areas as international waters, forestry, protected areas, and sustainable energy. 138. In the last five to six years, the country has expanded its climate-change agenda and bilateral funds have become increasingly available for integrating climate-change considerations into sector policies. Another visible trend is the growing focus on local governments, especially large cities. Multilateral Funds 139. In addition to GEF funding, Bolivia was also selected for the Pilot Program for Climate Resilience (PPCR) and the UN Program on Reducing Emissions from Deforestation and Forest Degradation (UNREDD). Multilateral funding tends to complement and supplement bilateral funding in responding to the challenges of climate change. 140. GEF projects have served to create pilots. The Small Grants Program has been testing innovative solutions (mitigation and adaptation) at the local level. Other GEF programs have increased the environmental value of certain sectors, such as biodiversity in the forestry sector. 141. The PPCR in Bolivia ($86 million) complements already-existing bilateral funding in the water and river basin sectors, increasing the climate resilience of those investments. 142. Bolivia also participates in the Forest Carbon Partnership Facility (FCPF), which seeks to reduce emissions from deforestation and forest degradation. It is supported by the German Kreditanstalt für Wiederaufbau (KfW) and the German Agency for Technical Cooperation (GTZ), as well as the UN-REDD. However, since April 2010, the FCPF issue has been on hold because of the Bolivian authorities’ position on carbon markets. The Bolivian authorities maintain that the REDD mechanism will not create the value needed for adaptation and mitigation in the forestry sector and the country is exploring alternatives to the REDD, as the authorities indicated at the Conference in Durban. 52 Bilateral Funds 143. Bilateral funds have increasingly been directed to addressing climate change in Bolivia. This is notable in the water sector and the river basin program funded by a basket fund (Annex I), where climate-change considerations have been mainstreamed into the program goals. The same is true for the peri-urban water program (a $100 million program funded by IDB). 144. Through all of these programs, the water sector is expected to rapidly generate lessons on how to mainstream climate change into current investments. These lessons can then be extrapolated to other programs within the sector, and also to other sectors. The goal of the PPCR in Bolivia is to help generate these lessons. 145. Another program with the potential to spin off valuable lessons is funded by the Swiss Cooperation ($10 million). This program is aimed at enhancing the capacities of local governments to deal with climate-related disasters and at strengthening the roles and functions of local governments in creating climate-friendly investments. 146. Cities are increasingly becoming the focus of bilateral funding. The Nordic Development Fund has created an international project (for which Bolivia is eligible) to explore ways to integrate mitigation and adaptation goals in the context of urban planning, and it is rapidly gaining support from such other sources as the IDB. IV. Institutional Framework for Absorbing Climate Financing 147. Bolivia signed the Rio 92 Conventions and the same year created its Ministry of Sustainable Development, which was formerly the Ministry of Planning but included a strong Department of Environment. Law 1333 (1992) marked the initiation of environmental regulation in Bolivia; since then, the country has signed and ratified the UNFCCC, the Convention on Biological Diversity (CBD), and the UN Convention to Combat Desertification and Drought (UNCCD), among others. It has also signed and ratified the Kyoto Protocol, Montreal protocol, and International Agreements on Persistent Contaminants (COPs). And in 1998, Bolivia initiated its first National Climate Change Strategy and, almost in parallel, a Strategy for Conservation of Biological Diversity. 148. Institutions that play a key role in climate finance in Bolivia (see figure 1) are the Ministry of Environment and Water (MMAyA), in particular the Vice-Ministry of Environment, the Ministry of Development Planning (MPD)--especially the Vice-Ministry of Public Investments and Foreign Funding (VIPFE), and the Ministry of Economy and Public Finances (MEyFP). Also, the Ministry of Hydrocarbons and Energy and other sector ministries have participated in adaptation and mitigation projects. And the ministry of foreign affairs has played a role in defining international positions and, in some cases, in the area of climate funding. 53 Figure 1: Project Preparation and Endorsement for GEF Projects in Bolivia Source: Author’s research by Javier Gonzalez Iwanciw 149. The Vice-Ministry of Environment is the technical focal point of the UNFCCC and it has played a central role in defining access to climate finance (i.e., all GEF projects need its formal endorsement, Figure 1). This model changed with the application of other financial mechanisms not so clearly attached to UNFCCC rules (e.g., in the case of the presentation of Bolivia to the PPCR VIPFE, the Minister of Planning took the lead in presenting the project to the CIF Committee). With regard to Bolivia´s participation in the REDD mechanism, the foreign affairs ministry played a central role in identifying the inconsistence of the REDD mechanisms with the Bolivian international position with respect to the UNFCCC. National Policies and Climate Funding 150. One of the most difficult requirements of the GEF, and thus an important challenge, is that Bolivia be able to show consistent policies and demonstrate the ability to co-finance project activities. In general, international funding tends to support the implementation of national priorities. 151. The more visible elements of Bolivia´s environmental policy are linked with other relevant social issues and demands, such as access to land, water, and natural resources. In particular, low-land indigenous populations have played a major role in shaping Bolivia’s environmental agenda and consolidating the National System of Protected Areas and Indigenous territories, which is also central for territorial and the legal clearance of land. 152. Other civil society networks have also played an important role since the signing and ratification of international multilateral agreements. Despite these efforts, and the clear and concrete concerns of civil society groups and segments of the society, environmental issues have never been a key priority of the government. While environmental policy has been 54 factored into the policy discourse in recent years,54 changing Bolivia’s current pattern of development based on the exploitation of natural resources remains a huge challenge. Moreover, the Bolivian government’s policy discourse concerning climate change may be perceived as unhelpful for accessing climate finance.55 153. On the other hand, climate change has become a key aspect of the government’s environmental discourse and also central in the context of international and bilateral relations. Bolivia is one of seven countries selected for the Pilot Program for Climate Resilience (PPCR). The Bolivian proposal for the first phase was submitted and approved by the PPCR sub- committee in June 2010; the second phase was submitted to the CIF committee in November 2011. 154. The recognition of access to water as a basic human right has oriented the efforts of the government in the last years. Bolivia´s PPCR investments focus entirely on the water sector, which reflects the priority the government places on water issues and the water sector. 56 The sector has become one of the country’s major priorities. Indeed, general investments of the Ministry of Environment and Water in water, sanitation, and irrigation for the period 2010-14 will surpass the $100 million a year (3 percent of Bolivia’s annual public investment). Institutional Capacities 155. According to the IMF, Bolivia’s overall fiscal position has improved since 2007,57 thanks to substantial oil revenues. The overall fiscal surplus is estimated to have reached 3.5 percent of GDP in 2011. Still, current central government spending is high and only 48 percent is covered by general taxes; the larger share is covered by oil revenues, donations, and debt. This means Bolivia has little scope for addressing needed investments in productive sectors and in the environment. The central government allocates only 25 percent of the general budget to investments but 75 percent for current spending. In addition, the general administrative cost of the government (7 percent of GDP) exceeds that for all investments in productive sectors and is much larger than investments in the environment.58 Since 1992, Bolivia has also devolved important functions to decentralized government units. The country 54 The respect and protection of natural resources has been advocated in the UN for the recognition of the “Rights of Mother Earth." The notion of the Rights of the Mother Earth has been a guideline for national policies relating to the management and conservation of natural resources. It emphasizes the need to achieve higher levels of harmony with nature and to lead to the promulgation of a new Framework Law for the Mother Earth to replace current environmental regulations, which are seen as inadequate for dealing with the environment. 55 The climate-change agenda in Bolivia has received considerable political attention in the last five years. This became evident during COP15 and COP16, when Bolivia was one of the countries blocking the Copenhagen Accord on global warming. This was later emphasized in the World Peoples Conference on Climate Change and Rights of Mother Earth, held in Cochabamba in April 2010. 56 In 2006, Bolivia created a Ministry of Water, which in 2009 became the Ministry of Environment and Water. 57 The IMF, World Bank, and IDB have written off his debt to Bolivia in 2007. This means that in the Latin American context, Bolivia is the country with the lowest debt. 58 These investments include investments in water and sanitation and irrigation. 55 has legislation in place to ensure the proper functioning of decentralized and autonomous units. Municipal and provincial governments are responsible for the 59 percent of public investments in the country. 156. Lack of stability in the civil service undermines environmental management. Despite some exceptions, Bolivian public institutions face several constraints. The government still does not have the necessary capacity in personnel, economic resources, and other means to prepare and follow up on environmental programs. The rotation of technical staff is a mayor constraint; public institutions are widely perceived as poorly organized and unreliable and thus unable to meet international criteria and procedures. The lack of clearly defined procedures generates implementation gaps and, in some cases, low project execution. 157. Since the ratification of the UNFCCC, Bolivia has been able to develop acceptable technical and research capacities within its National Climate Change Program and linked Research Institutes. It has prepared a greenhouse gas inventory and implemented a National Adaptation Plan. The National Climate Change Program and the resulting plans, however, are seen as weak, as they depend almost entirely on international funding (donations) to do their work and to implement projects. 158. Multilateral agencies together with sector ministries still play a central role in preparing projects and proposals to be funded by international mechanisms. The UN system and multilateral banks (defined as, for example, operational entities by the GEF) function as intermediaries providing technical assistance and hiring consultants to prepare projects and programs. Civil society and the academic community play a major role in providing expertise for these purposes. 159. A national consultation about changes in cooperation policies,59 relative to the implementation of the Paris Declaration on Aid Effectiveness suggests that:  Bolivia still needs to organize its planning system; it works at the macro level (e.g., National Development Plan) but still needs to be structured at the operational level.  Donors seek to align with national priorities and established guidelines, but changes in national priorities make coordination within sectors difficult.  The level of coordination of international cooperation has improved, as reflected in the implementation of basket funds60 and the Group of Partners for Bolivia’s Development (GruS).  Bolivian institutions do not have an administrative model of management for results. 59 CONSULTA NACIONAL Cambios en las políticas de cooperación y desarrollo en Bolivia, UNITAS, IBON, AECID, TROCAIRE, The Reality of Aid, Nov 2011. 60 Bolivia has been organizing sector cooperation based on basket funds. For these funds to operate, sector plans are required. This financing mode also requires trustee capabilities within the receptor sector. Currently, Bolivia is managing seven basket funds, one in the environment and water sector. 56 160. The study also concludes that a major challenge with respect to technical assistance provision is to articulate the planning and management stages in order to keep priorities at the executing level, introduce staff permanence, organize demand for technical assistance, and establish a results-based management. 161. Although it is legally required, Bolivia does not systematically publish environmental information, owing to its erratic monitoring and absence of “baselines� for evaluation of environmental variables. As a result, environmental assessments are scarce, impeding systematic implementation of prevention and mitigation policies. In addition, there are many gaps in fulfilling the recommendations of the environmental impact assessments in sector activities. The PPCR will contribute to strengthening the water sector so that all national investments in the sector use best practices, be subject to environmental evaluation, and be oriented through a monitoring and evaluation system. V. Reliable Financial Management and Financial Reporting Structure 162. Apart from sector ministries and the National Focal Point (Vice-Minister of Environment), the Vice-ministry of Public Investments and Foreign Funding (VIPFE) is the central entity within the government for defining success in applying for international funding. The VIPFE is in charge of registering public investments and following up the financial execution of those investments. 163. Bolivia has a National System for Public Investments (SNIP) that incorporates phases of registering, follow up, and reporting. The country has increased public investments from about $590 million in the early 2000s to $3.25 billion in 2012. This has put the VIPFE in a position to encourage further development of information systems and procedures. Major challenges of the system include its expansion (only 43 percent of total international cooperation has been registered in the accounting system) and better and more transparent procedures and reporting systems. Co-financing of national investments is possible and a desirable way of using international cooperation. Depending on a project’s location, it can have different levels of co-financing at the national, provincial, and district levels. VI. Demand for Good Governance and Transparency from Civil Society and Donors 164. Civil society is perceived as strong and well organized in Bolivia. The process of popular participation was initiated in 1992 and has built up a culture of participation, consultation, and social control in the various levels of governance. Owing to other cultural factors, social networks, and the strong identity of indigenous people, civil society is able to organize and articulate demands rapidly in many cases e.g. in 2006. This has challenged the whole governmental administration, as in its calls for the resignation of the central authorities. 57 165. In the context of the environment and climate change, civil society has played a central role in articulating key demands and providing guidance to the government. Indigenous organizations, the main constituencies of the current administration (with the support of national and international NGOs) defined the climate-change position of the Bolivian government61 in international negotiations. In many cases, civil society groups also took part in the negotiations as part of the official delegation. The Cochabamba Peoples Conference on Climate Change is part of this process of structuring climate-change policy and international positions in the country. 166. Because of sharp positions taken by Bolivian negotiators in international negotiations, donors have adopted a cautious stance with regard to their climate-change collaboration plans with Bolivia. But, in terms of the application of the Paris principles on aid effectiveness, Accra Agenda for Action, and Busan Action Plans, Bolivia is generally perceived to be responding to the principles and challenges in a proactive way. VII. Conclusions and Recommendations 167. Bolivia’s relative success in accessing international climate funding is the result of not just one factor but of a combination of demographics, environmental characteristics, economic attributes, and governance. This success has been achieved despite major challenges, such as, high poverty levels, unsustainable natural resource use, and high vulnerability levels. 168. In general, it appears that international funding will follow national policies and complement and/or supplement sector investment. This is reinforced by the fact that more and more climate financial instruments are moving toward programmatic approaches. International donors present in Bolivia acknowledge that the country has been proactive in adopting the principles of the Paris Declaration on Aid Effectiveness, which emphasizes a country’s drive in implementing policy and aligning international cooperation but also calls for enhancing transparency and accountability. 169. Given these objectives, however, not only do clear sector policies become more urgent but so do enhanced levels of intergovernmental coordination and capacity to deal with expanded financial flows. These both pose large challenges for Bolivia’s government administration. 61 In the context of climate negotiations, Bolivia advocates for a legally binding agreement that ensures a drastic reduction in the levels of GHGs to avoid major climate change; the level has to consider the best scientific evidence and the precautionary principle. In Copenhagen, Bolivia advocated for a 1°C maximum warming target. Bolivia also advocates for the recognition of the “climate debt� that industrial countries have with developing countries, resulting from the excessive use of the atmospheric budget since the industrial revolution. In terms of financing mechanisms, more public resources should be channeled to support adaptation efforts in developing countries. 58 170. One of the central elements related to international funding will be ensuring efficient results in terms of adaptation and mitigation. Success will depend on whether Bolivia is able to demonstrate that international climate funds can be used in cost-efficient and effective ways. To develop an administrative model of “management for results� implies enhanced capacities at the level of sector ministries (e.g., for sector baseline monitoring). It also requires cross- cutting capacities, such as monitoring and evaluation of financial execution and environmental impact assessments that require additional responsibilities for environmental authorities. 59 References: Bolivia Case Study Arana, I., Aparicio, M., Garcia, M., 2007, “El Cambio Climático en Bolivia (Análisis, síntesis de impactos y adaptación)�, PNCC – Embajada del Reino de los Países Bajos, La Paz. Bolivia, 2011, Strategic Program for Climate Resilience, La Paz – Washington DC. Chaplin, A., 2009, Percepciones de comunarios y comunarias del Altiplano Boliviano sobre los cambios en el clima y sus efectos, Plataforma Boliviana frente al Cambio Climático – CIPE – CIPCA – CristianAid, La Paz. Flores, T., 2011, Análisis institucional sobre la adaptación al cambio climático en Bolivia, Asociación Boliviana Prodefensa de la Naturaleza, La Paz. Fundación Jubileo, 2011, Análisis del Presupuesto General del Estado 2011. Reporte de coyuntura Nº 13, La Paz. Gonzales, J., Suarez, P., 2007, Poverty Reduction at Risk in Bolivia. An Assessment of the Impacts of Climate Change on Poverty Alleviation Activities, DGIS – NCAP, The Netherlands. Marengo, J., 2010, Inserción del componente cambio climático al PNC – Vieministerio de Recursos Hídricos y Riego, GIZ – Instituto de Ecología . Centro Bartolome de las Casas, La Paz MMAyA, 2009a, Segunda Comunicación Nacional del Estado Plurinacional de Bolivia ante la CMNUCC. La Paz 2010a, Compilación de Conclusiones y Resultados. Conferencia Mundial de los Pueblos sobre el Cambio Climático y los Derechos de la Madre Tierra. La Paz 2010c, Estrategia Nacional de Bosque y Cambio Climático. La Paz MDSP, 2000, Primera Comunicación Nacional de Bolivia ante la CMNUCC, La Paz 2001, Estrategia Nacional de Implementación de la Convención Marco de las Naciones Unidas sobre el Cambio Climático. La Paz MDP, 2006, Plan Nacional de Desarrollo. La Paz 2007, Mecanismo Nacional de Adaptación al Cambio Climático. La Paz Orellana, R., Pacheco, D., 2012, El Futuro que queremos desde la perspectiva Boliviana. Cambio. Junio 2012 PNUD, 2011, Tras las Huellas del Cambio climático en Bolivia. PNUD, La Paz UNEP-RISO Centre, 2007, Climate Screening Bolivia, Report prepared for DANIDA. UNITAS, 2011, Cambios en las políticas de Cooperación y Desarrollo en Bolivia. Consulta Nacional. The Reality of Aid – Ibon – Trocaire- AECID – UNITAS. La Paz 60 Summary of Climate-Related Funding in Bolivia (Programs must explicitly include the climate-change variable) Government Budget FINANCIAL executing Projects Description Period INSTRUMENT (Million USD) agency GEF 3 ID 2095 - Regional Project: Sustainable Management of the Water (2002 – 2006) 2.291 Resources of the la Plata Basin with Respect to the Effects of Climate Variability and Change. GEF 3 MMAyA ID 2363 - National Capacity Self-Assessment for Global 2.00 Environmental Management. GEF 3 ID 2364 - Regional Project: Integrated and Sustainable Management 7.00 of Trans-boundary Water Resources in the Amazon River Basin Considering Climate Variability and Climate Change ($.9625 million). GEF 3 ID 2505 - Regional Project: SFM Sustainable Forest Management in 2.45 the Trans-boundary Gran Chaco American Ecosystem. GEF 3 UNDP ID 2774 - Global Project: Community-based Adaptation (CBA) 5.00 Program GEF 3 WB / PNCC ID 2902 - SCCF- Regional Project: Design and Implementation of 2.497 Pilot Climate Change Adaptation Measures in the Andean Region. GEF 4 ID 3514 - Global Project: 4th Operational Phase of the GEF Small 0.359 Grants Program (RAF1). GEF 4 ID 3871 - Global Project: 4th Operational Phase of the GEF Small 7 Grants Program (RAF2). GEF 4 ID 3971 - SFM Biodiversity Conservation through Sustainable 5.6 Forest Management by Local Communities. GEF 5 ID 4481 - Fifth Operational Phase of the GEF Small Grants Program 4.167 in Bolivia. Government Budget FINANCIAL executing Projects Description Period INSTRUMENT (Million USD) agency GEF 5 FAO / MDRyT ID 4577 - Conservation and Sustainable Use of Agro-biodiversity to 2010 - 2014 2.7 Improve Human Nutrition in Five Macro Eco-regions. CIF MMAyA / VRHR Strategic Climate Fund (SCF) / Pilot Program for Climate Resilience (Phase I) 1.5 (PPCR) Bolivia Strategic Program for Climate Resilience (SPCR). (Phase II) 86.00 UN REDD MMAyA UN- REDD in Bolivia 4.70 Program for emissions from deforestation and forest degradation 3.60 under the REDD mechanism. BID MMAyA / VASB Potable Water and Basic Sanitation – Peri-urban Program 100.00 BILATERAL FUNDS The Netherlands, MMAyA / VRHR National River Basins Program (Basket Fund) 47.75 COSUDE, KfW, AECID EU MMAyA Sector Support to the National River Basins Program 19.00 The Netherlands MMAyA / PNCC PNCC Five Year Plan, commencing 2004 5.00 The Netherlands PNCC / 6 The Netherlands Climate Assistance Program 0.48 Municip. DANIDA PNCC Implementation of National Adaptation Mechanisms 1.00 MDRyT, MPD Support for the extension of the environmental program 25.00 The Nordic Bolivian cities / NDF C40 Latin America: Climate Change and Sustainable Cities. 2.73 Development LA PAZ Fund KfW MMAyA Support Project for the Initiative of Deforestation Reduction and 11.00 Forest Comprehensive Management. KfW MMAyA Guadalquivir Potable Water and Sewerage Program 17.00 62 Government Budget FINANCIAL executing Projects Description Period INSTRUMENT (Million USD) agency KfW MMAyA Sucre Potable Water Project III (Sasanta - Yurubamba) 14.00 GIZ MMAyA / PROAGRO (Water for agricultural production and integrated river 23.40 MDRyT basin management). COSUDE MPD – VIPFE / PRRD/Developing risk governance in the decentralized public 10.00 MDRyT – VDRA planning processes, agricultural risk management, integration with Departments other programs of the COSUDE in Bolivia, technical assistance. 63 Acronyms: Case Study of Bolivia CBD Convention on Biological Diversity COP Conference of the Parties FCPF Forest Carbon Partnership Facility GEF Global Environment Facility GTZ German Technical Cooperation IADB Inter-American Development Bank KFW German Development Bank LAC Latin America and the Caribbean MMAyA Spanish acronym of Ministry of Environment and Water MDRyT Spanish acronym of Ministry of Rural Development and Land MEyFP Spanish acronym of Ministry of Economy and Public Finances MPD Spanish acronym of Ministry of Development Planning PNCC Spanish acronym of National Climate Change Program PPCR Pilot Program for Climate Resilience UNCCD United Nations Convention to Combat Desertification UNFCCC United Nations Framework Convention on Climate Change UNREDD Reduction Emissions for Deforestation and Degradation VIPFE Spanish acronym of Vice-Ministry of Public Funding and Foreign Funding VMA Spanish acronym of Vice-Ministry of Environment, Biodiversity, Climate Change and Forestry Development PART III: Annexes Annex I: Global Climate Funds of Possible Interest to LAC, 2011 Portfolio/ LAC Share of Fund Commitments Current Portfolio LAC Countries ($ billion) (percent) Global Environment Facility 3.4 22 All LAC countries eligible (GEF), TOTAL Climate Investment Funds See individual CIF Funds below for eligibility and participating 6.396 15 (CIF), TOTAL countries. Recipients must be eligible for ODA and have an active MDB CIF-Clean Technology Fund country program. 4.5 24 (CTF) Mexico, Colombia, Chile Recipients must be eligible for ODA and have an active MDB CIF – Strategic Climate Fund Included in CIF total country program. (SCF) - Pilot Program for 1 above IDA: Bolivia, Caribbean Region (Dominica, Grenada, Haiti, Climate Resilience Jamaica, Saint Lucia, Saint Vincent and the Grenadines). CIF – Strategic Climate Fund Recipients must be eligible for ODA and have an active MDB Included in CIF total country program. (SCF) - Forest Investment 0.578 above Program Mexico, Peru, Brazil A low-income country must be eligible for assistance from the World CIF – Strategic Climate Fund Bank’s International Development Association (IDA) or a Regional (SCF) - Scaling Up Renewable Included in CIF total Development Bank equivalent and have an active MDB country 0.318 Energy Program for Low- above program. Income Countries Honduras World Bank Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, 2.5 6 Carbon Funds Guyana, Honduras, Mexico, Nicaragua, Peru, Uruguay. Additional Global Climate Funds of Possible Interest to LAC, 2011 Portfolio/Comm LAC Share of Fund itments (USD Current Portfolio LAC Countries Accessing funds billion) (percent) Bolivia, Brazil, Chile, Costa Rica, Dominican Rep, Ecuador, International Climate Initiative 1.73 17 Mexico, Peru, St. Vincent. UN- REDD 0.97 19 Bolivia, Panama, Paraguay (consultations with Ecuador, Mexico). IDB'S Multilateral Investment 0.6 100 All LAC countries eligible Fund Ecuador, Nicaragua, Honduras (Kyoto Protocol developing country UNFCCC Adaptation Fund 0.3-0.5 27 parties eligible). Global Facility for Disaster Reduction and Recovery 0.244 n/a Priority: Haiti, Panama, nearly all LAC (GFDRR) IFC’s Global Climate 0.2 n/a Eligible (investment): Brazil, Chile Mexico, TA: Ecuador Partnership Fund Guyana REDD+ Fund 0.2 100 Guyana http://www.guyanareddfund.org/ European Investment Bank (EIB) 0.060 28 Mexico, Brazil, Chile, Peru and Colombia Global Energy Efficiency and 66 Renewable Energy Fund (GEEREF) http://www.geeref.com/posts/dis play/25 European Commission Blending Mechanisms - Latin America Investment Facility (LAIF) 0.046 100 Nicaragua, El Salvador, Mexico and others. http://ec.europa.eu/europeaid/wh ere/latin-america/regional- cooperation/laif/projects_en.htm 67 Annex II: Main Instruments for Financing Climate Action 62 More details available from www.climatefinanceoptions.org 1. Climate-Specific Additional Resources Available Under the UN Framework Convention on Climate Change (UNFCCC) Climate Fund Purpose Description The overall goal of all adaptation projects and programs financed under the Adaptation Fund Adaptation Fund is to support concrete adaptation activities that reduce the Adaptation adverse effects of climate change facing communities, countries, and $300-$600 million by 2012 sectors. Can be implemented at the city level. Applications through www.adaptation-fund.org national designated authorities and implementation through accredited Multilateral or National Implementing Entities. Largest source of grant-financed mitigation resources. Strategic Priority on Global Environment Facility Mitigation and Adaptation (SPA) is a funding allocation within the GEF Trust Fund to (GEF) $1.35 billion some support pilot and demonstration projects that address local adaptation during 2011–14 needs and generate global environmental benefits in all GEF focal areas. Adaptation Cities can initiate new projects or be implementation partners with national www.gefweb.org agencies. UNFCCC GEF-Administered Least Developed Countries Fund (LDCF): Special Funds Helps in preparing and financing the implementation of National Least Developed Countries Adaptation Adaptation Programs of Action (NAPAs) to address the most urgent Fund (LDCF): $223 million adaptation needs in the least developed countries. Special Climate Change Fund Special Climate Change Fund (SCCF): (SCCF): $148 million Supports adaptation and mitigation projects in all developing countries, 62 Ari Huhtala and others, “Climate Finance in the Urban Context,� World Bank, Issues Brief No. 4, Nov. 2010, Annex, pp. 10-11 (table modified somewhat by present author). www.gefweb.org with emphasis on adaptation. 2. Carbon Market Resources Carbon Fund, Size Purpose Description World Bank Carbon Funds and Cities can access Clean Development Mechanism (CDM) funds through the sale of Facilities certified emission reductions (CERs) to carbon funds. Size: 12 funds and facilities CPF can support cities in preparing CDM activities on a programmatic scale. entrusted with $2.5 billion World Bank Carbon Finance Unit can support monetizing CERs. www.carbonfinance.org Mitigation Carbon Partnership Facility (CPF): $176 million Forest Carbon Partnership Facility (FCPF): $100 million 3. Dedicated Concessional Funding (ODA) from the DAC Community Climate Fund, Size Purpose Description Climate Investment Funds The Clean Technology Fund (CTF): $6.4 billion $4.5 billion programmed for 13 investment plans to finance scaled-up www.climateinvestmentfunds.or Mitigation demonstration, deployment, and transfer of low-carbon technologies. g Major urban mitigation (transport and energy) investments in Bangkok and Mexico City; others are possible if more funds are pledged for programming. The Strategic Climate Fund (SCF): Adaptation and World Bank-administered, Mitigation Pilot Program for Climate Resilience (PPCR): implemented by multilateral $1 billion programmed for nine pilot countries and two regions to help build climate 69 development banks resilience in core development. Forest Investment Program (FIP): $587 million for eight pilot countries. Program to Scale Up Renewable Energy for Low- Income Countries (SREP): $318 million for six pilot countries. Urban upstream planning support and city- based investments possible to integrate into national plans now being formulated in agreed pilot countries. Reducing Emissions from Two major REDD funds fully or partially run by the World Bank, the Forest Deforestation and Forest Carbon Partnership Facility, and the Forest Investment Program (under the Climate Degradation programs Investment Funds) have already received over $700 million in pledged funding for pilot programs in forested developing countries and are currently commencing (REDD+) Mitigation implementation. Cook-stove programs can still be integrated into reduced- $4 billion in pledges as Fast Start deforestation country strategies and implementation plans. Their impact at the urban Finance following the level is the reduction of GHG and black- carbon emissions in low-income areas Copenhagen Accord with corresponding health co-benefits. 4. Other Climate Funds Size Purpose Description $10 billion Mitigation and Hatoyama Initiative (Japan) Adaptation $180 million a year Mitigation and International Climate Initiative (ICI) Germany Adaptation $160 million Adaptation Global Climate Change Alliance (European Commission) $135 million Mitigation and International Climate Change Adaptation Initiative (Australia) Adaptation 70 5. Examples of Non-Climate-Specific Support from Donors and Multilateral Development Banks Source or Instrument Purpose Description Partnership within the UN International Strategy for Disaster Reduction initiative, focusing on building capacities to enhance disaster resilience and adaptive capacities in a changing climate. About two-thirds of Global Facility for Disaster Reduction and Recovery (GFDRR) assistance has had a primary focus on climate change adaptation—that is, more than $27 million in nearly 90 countries across the world. Global Facility for Disaster GFDRR support has leveraged an additional $17 million of co-financing from Reduction and Recovery Adaptation development partners and larger amounts from World Bank investments. (GFDRR) The GFDRR Technical Assistance Fund is a global fund established through contributions of GFDRR partners into a multi-donor trust fund. The Callable Fund is a fund-in-readiness to be activated when disaster strikes. This multi-donor trust fund is innovative in that donors enter into an agreement with the World Bank before a natural disaster to support the Callable Fund; actual funds, however, are mobilized after a natural disaster through a Call for Funds. International Development To be developed as part of national initiatives and with national authorities: Association (IDA) Adaptation and - Development Policy Operations to build resilience into city budgets World Bank arm for Some Mitigation - Adaptation action at city level concessional lending to low- income countries - Mitigation action at city level IBRD, MDB, and bilateral core Adaptation and Stand-alone or in combination with climate-specific funds city-based adaptation and funds Mitigation mitigation interventions as part of national programs and with national authorities. Grant financing for knowledge products, capacity building, upstream project Trust Funds and Partnerships; Mitigation and work/pilots; partial risk guarantees to support development/adoption/ application of Guarantees Adaptation clean energy technologies, including those not fully commercialized, in client countries. 71 Risk financing strategy development. Climate Insurance Products MultiCat products with cities with parameter-based triggers. World Bank Treasury and Adaptation others, fee-based or donor- CAT swaps (e.g., for extreme flood risk). supported Multi-city insurance products for risk sharing and lower cost. Climate Bonds Bonds against city Certified Emission Reductions (CERs) or Nationally Appropriate Mitigation and Mitigation Actions (NAMAs) World Bank Treasury, etc. fee- Adaptation based or donor-supported Advice on monetizing carbon bonds World Bank Public-Private Infrastructure Advisory Facility, or other similar schemes, Mitigation and can provide technical assistance and matchmaking in the planning and Public-Private Partnerships Adaptation operationalizing of urban NAMAs by improving an enabling environment and strategic public intervention conducive to long-term private-sector commitment International Finance Corporation and other MDB private-sector arms can provide technical assistance and financial support to investors on climate-resilient Mitigation and Private sector infrastructure or low-carbon technologies through a combination of risk management Adaptation and other concessional instruments, bringing the cost to a level attractive for long- term private investment. 72 Annex III: Characteristics of Major Climate-Change Funds 63 1. Global Environment Facility (GEF) Trust Fund Category Characteristics Establishment Established in 1991, restructured in 1994 Main Purpose To protect global environment and environmentally sustainable development. Eligible Countries Countries eligible to borrow from the World Bank (IBRD and/or IDA) or eligible for United Nations Development Program (UNDP) technical assistance Focal Areas 6 focal areas for GEF-4: biodiversity, climate change, international waters, land degradation, ODS and POPs. Agencies 10 GEF Agencies • Implementing Agencies (3): UNDP, UNEP, WB • Executing agencies (7): FAO, IFAD, UNIDO, ADB, AfDB, EBRD, IDB. Access to Funding Eligible countries can access the fund through a GEF Agency. Forms of Funding Grants Trustee World Bank Governance and • The Assembly, consisting of representatives of all member countries, reviews and evaluates GEF’s general Management policies, the operation of the GEF and its membership, and considering and approving proposed amendments, documents, and rules. Structure • The GEF Council, the main governing body, is responsible for developing, adopting, and evaluating GEF programs. Council members comprise 32 constituencies (16 from developing countries, 14 from developed countries and 2 from countries with transitional economies). 63 Yu and Miller, IDB, 2011, p. 37 (modified somewhat by present author). • The GEF Secretariat reports directly to the GEF Council and Assembly, coordinates the formulation of projects, and oversees their implementation. Sources of Funding Replenishment from donor countries’ commitments every four years • Replenishment for GEF-4: $3.135 billion • Replenishment for GEF-5: $4.25 billion Disbursements $ 9.2 billion (as of December 31, 2010) Sources: Instrument for the Establishment of the Restructured Global Environment Facility, GEF (2008); www.thegef.org 2. Least Developed Countries Fund (LDCF) and Special Climate Change Fund (SCCF) Category Characteristics Establishment Established in 2001 under the UNFCCC Governance and • The COP is the highest decision-making authority and provides guidance on policies, program priorities and Management eligibility criteria. Structure • Contributions from countries are voluntary. • The GEF serves as the operating entity of the LDCF/SCCF requiring the GEF council to report annually to the COP on all GEF-financed activities in conducting the Convention. But the LDCF/SCCF are separate from the GEF Trust Fund and have their own Councils. • The LDCF/SCCF follow GEF policies, procedures, and rules in their operations such as fiduciary standards, project cycle, allocation (result-based frameworks), and monitoring and evaluation. • The LDCF/SCCF Councils meet biannually in separate back-to-back sessions within the overall GEF Council. Forms of Funding Grants Trustee World Bank Agencies 10 Agencies (same as GEF Trust Fund) 74 • Implementing Agencies (3): UNDP, UNEP, WB • Executing agencies (7): FAO, IFAD, UNIDO, ADB, AfDB, EBRD, IDB LDCF SCCF Main Purpose To identify and support, through the preparation of To finance climate- change activities National Adaptation Programs of Action (NAPAs) Complementary both to the focal areas of the GEF the urgent and immediate concerns and activities of Trust Fund and to the activities carried out by bilateral LDCs as they adapt to climate change. and multilateral agencies in developing countries. Mandates and Areas • Preparation and implementation of • Adaptation to climate change (top priority) National Adaptation Programs of Actions • Technology transfer (NAPAs) • Selected sectors including energy, transport, industry, agriculture, forestry and waste management • Supports work programs to • Economic diversification address the special needs of LDCs. Eligible Countries 48 LDCs as defined by UN (33 in Africa, 9 in Asia, All developing countries that are parties to the UN 1 (Haiti) in LAC, and 5 in Oceania) Framework Convention on Climate Change (UNFCCC) Contributions $210 million (as of December 31, 2010) $136 million (as of December 31, 2010) Donor Countries 19 countries (Australia, Austria, Canada, Denmark, 13 countries (Canada, Denmark, Finland, Germany, Finland, France, Germany, Ireland, Italy, Japan, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Luxembourg, Netherlands, New Zealand, Norway, Sweden, Switzerland, and United Kingdom). Portugal, Spain, Sweden, Switzerland and United Kingdom). Sources: GEF/C.24/12 (2004); GEF/C.28/18 (2006); GEF/LDCF.SCCF.9/INF.7 (2010); “Strategy on Adaptation to Climate Change for the LDCF and the SCCF,� GEF, 2011 75 3. Adaptation Fund Category Characteristics Establishment Established in December 2007 Mandate To finance concrete adaptation projects and programs based on the needs, views, and priorities of eligible countries. Eligible Countries Developing country parties to the Kyoto Protocol particularly vulnerable to the adverse effects of climate change. Sources of Revenues • 2 percent of CERs under the CDM (main source) • Donations from voluntary countries (Finland, France, Germany, Japan, Monaco, Norway, Spain, Sweden, Switzerland and others). Criteria for Resource • Level of vulnerability Allocation • Level of urgency and risks arising from delay • Ensuring access to the fund in a balanced and equitable manner • Lessons learned in project and program design and implementation • Securing regional co-benefits to the extent possible • Maximizing multi-sector or cross-sector benefits • Adaptation capacity to the adverse effects of climate change. Access to Funding Eligible developing countries have two different options: i) direct access through a National Implementing Entity (NIE), or ii) access through a Multilateral Implementing Entity (MIE). Forms of Funding Grants Governance and • The Adaptation Fund Board is the operating entity under the authority and guidance of the COPs Management Structure serving as the meeting of the Parties of the Parties to the Kyoto Protocol. • The AFB consists of 16 members representing Parties to the Kyoto Protocol, reflecting fair and balanced representation among these groups: two from each of the five UN regional groups, one from the small island developing countries, one from the LDC parties, two from the Annex I Parties, and two from the non-Annex I Parties. 76 • The GEF provides secretariat services to AFB, and the WB serves as trustee of Adaptation Fund, on an interim basis, respectively. Cumulative Receipts $225 million (as of January 31, 2011) • cash receipts from CER sales: $138 million • cash receipts from donors and other sources: $87 million Disbursements $12.6 million (as of January 31, 2011) Sources: AFB/EFC.4/10/Rev.2 (2011), The Handbook: Accessing Resources from the Adaptation Fund, Adaptation Fund, 2011 4. GEF Earth Fund/Public-Private Partnership Category Characteristics Establishment Endorsed by GEF CEO as pilot project in May 2008 Mandate To mobilize capital for innovative projects, technologies and business models in order to promote private sector engagement in the activities of the GEF. Basic Structure • The fund is an umbrella program consisting of platforms that have a portfolio of projects. • The projects within each platform must be consistent with the GEF focal areas. Access to Funding GEF agencies, NGOs and foundations meeting the GEF fiduciary standards can propose platforms, and are qualified as platform Managing Agencies. Governance Structure • The GEF Council is the governing body of the fund, approving the establishment, financial allocations, governance structure, and operating procedures. • The GEF Earth Fund Board provides strategic guidance and support to the GEF Earth Fund. • The GEF Secretariat acts as Secretariat of the GEF Earth Fund. Trustee International Finance Corporation (IFC) Sources of Funding • Funding at the GEF Earth Fund level: GEF allocation and GEF Earth Fund sponsors’ Contributions. • Funding at the platform level: contributions from platform managing agencies, others within the 77 Platform, and co-financing. Forms of Funding Non-grant instruments such as loans, guarantees, equity and other types of investments, as well as grant funding for technical assistance, capacity building, implementation costs and knowledge management. GEF Allocations to the • $50 million for GEF-4 (excluding agency fees) Fund • $80 million for GEF-5 (excluding agency fees) Sources: The GEF Earth Fund Board Procedures (Pilot Project), GEF (2009); IFC Earth Fund: A Platform of the GEF Earth Fund, GEF (2008); GEF/R.5/31/CRP.1 (2010) 5. Clean Technology Fund (CTF) Category Characteristics Establishment Approved by World Bank Executive Directors in July 2008. Main Purpose To provide developing countries with scaled-up financing to promote demonstration, deployment, and transfer of low-carbon technologies for long-term GHG emissions savings. Areas of Investment • Power sector (renewable energy, as well as increased efficiency in generation, transmission and distribution). • Transportation (modal shifts to public transport, improved fuel economy and fuel switching). • Energy Efficiency in buildings, industry and agriculture. Country Eligibility Countries eligible for ODA and where a MDB has a lending program and/or an ongoing policy dialogue with the country. Agency AfDB, ADB, EBRD, IDB, WB, and IFC Governance Structure • The CTF Trust Fund Committee oversees the operations and activities of the CTF, and consists of eight representatives from contributor countries and eight representatives from eligible recipient countries. • The MDB Committee comprises representatives of the MDBs to facilitate collaboration and information exchange among MDBs. 78 • The Administrative Unit is housed in the WB and staff members are employed by the WB. Trustee World Bank Contributions (Pledges) $4.4 billion (as of September 30, 2010) from 8 countries: Australia, France, Germany, Japan, Spain, Sweden, United Kingdom, and United States. Forms of Financing Grants, concessional loans, guarantees and equity Approval of Investment Thirteen Investment Plans were approved for Colombia, Egypt, Indonesia, Kazakhstan, Mexico, Plans Morocco, Philippines, South Africa, Thailand, Turkey, Ukraine, Vietnam, and the Middle East and North Africa Region (as of September 30, 2010). • CTF funding: $4.4 billion • Expected co-financing: $34.6 billion Sources: 2010 Annual Report, CIF, 2011, “Governance Framework for the Clean Technology Fund,� CIF, 2008. 6. Strategic Climate Fund (SCF) Category Characteristics Establishment Approved by World Bank Executive Directors in July 2008. Main Purpose To pilot new development approaches and scaled-up activities aimed at specific climate change challenges or sectoral response. Targeted Programs The SCF operates through three targeted programs: i) FIP (forest investment program, approved in May 2009); ii) PPCR (pilot program for climate resilience, approved in November 2008); and iii) SREP (program for scaling-up renewable energy in low income countries, approved in May 2009). Aims of Specific Programs (i) FIP: to support developing countries’ efforts to reduce emissions from deforestation and forest degradation, and promote sustainable forest management by providing scaled-up bridge financing. (ii) PPCR: to demonstrate ways that developing countries can make climate risk and resilience part of their core development planning by providing incentives for scaled-up action and initiating transformational change. (iii) SREP: to demonstrate the economic, social, and environmental viability of low carbon development pathways by financing renewable energy sectors such as solar, wind, bioenergy, geothermal, and small 79 hydro technologies. Country Eligibility Countries eligible for ODA and where an MDB has a lending program and/or an on-going policy dialogue with the country. Agency AfDB, ADB, EBRD, IDB, WB, and IFC Governance Structure • The SCF Trust Fund Committee oversees the operations and activities of the SCF, and consists of eight representatives from contributor countries and eight representatives from eligible recipient countries. • A SCF Sub-Committee for each program includes approval of programming priorities, operational criteria, financing modalities, financing for programs and projects, and periodic reports to the SCF Trust Fund Committee on the operations of the program. • The MDB Committee comprises representatives of the MDBs so as to facilitate collaboration and information exchange among the MDBs. • The Administrative Unit is housed in the WB, whose staff members are employed by the WB. Trustee World Bank Contributions (Pledges) $ 1.8 billion (as of September 30, 2010) (i) FIP: $558 million from six countries: Australia, Denmark, Japan, Norway, United Kingdom, United States. (ii) PPCR: $972 million from eight countries: Australia, Canada, Denmark, Germany, Japan, Norway, United Kingdom, United States (iii) SREP: $307 million from seven countries: Denmark, Japan, Netherlands, Norway, Switzerland, United Kingdom, and the United States. Forms of Financing Grants, concessional loans, guarantees and equity Approval of pilot projects 24 projects (as of September 30, 2010) (i) FIP: 8 projects in Brazil, Burkina Faso, Democratic Republic of Congo, Ghana, Indonesia, Lao People’s Democratic Republic (PDR), Mexico, and Peru. (ii) PPCR: 10 projects in Bangladesh, Bolivia, Cambodia, Mozambique, Nepal, Niger, Tajikistan, Yemen, Zambia, the Caribbean and Pacific regions. (iii) SREP: 6 projects in Ethiopia, Honduras, Kenya, Maldives, Mali, Nepal. Sources: 2010 Annual Report, CIF, 2011, “Governance Framework for the Strategic Climate Fund,� 2008 80 7. Sustainable Energy and Climate Change Initiative (SECCI) Funds Category Characteristics Establishment Approved by the IDB Board of Directors in March 2007. Main Purpose To promote investments in renewable energy and energy efficiency and biofuels in LACs, LACs’ access to international carbon markets and climate-change adaptation strategies in the region. Strategic Pillars and Priority There are four strategic pillars and the corresponding priority lines of action: Lines of Action (i) Renewable energy and energy efficiency: assessment of the potential for RE/EE, minimization of regulatory, institutional and financial barriers, and development of new RE/EE projects and technologies. (ii) Sustainable bio-fuel development: assessment of the economic viability and potentials of bio-fuels, country-level policy assistance for bio-fuel development, funding for new bio-fuel programs and technologies. (iii) Access to carbon markets: technical assistance for climate change mitigation projects under the CDM, capacity building for effective engagement in carbon markets, and development of innovative financial schemes and instruments. (iv) Adaptation to climate change: incorporation of adaptation strategies to national and regional planning, establishment and reinforcement of local institutional capacity, financial and technical assistance for strategic and replicable pilot projects of adaptation, and development and assessment of key policies and regulatory instruments. Eligible Projects Technical cooperation projects and investment grant projects: consulting services and goods necessary for studies, complementary training activities such as workshops, technical sessions and seminars, and any other activity compatible with the goals of SECCI. Eligible Entities National and sub-national government organizations, public and private corporations, private project developers, NGOs, and academic and research institutions in the region. Funding Resources Two different resources from (i) the IDB (SECCI IDB Fund) and (ii) international donor countries, such as Finland, Germany, Italy, Japan, Spain, and United Kingdom (SECCI Multi-Donor Fund). 81 Contributions $87 million (as of December 31, 2010) (i) $60 million from the IDB Ordinary Capital and (ii) $27 million from international donors. Forms of Financing Grants Governance Structure • The governance structure of SECCI Funds is similar to that of other IDB-managed facilities. • The SECCI Eligibility Committee was created at the end of 2008 to review and approve proposals for the SECCI Funds, consisting of the particular country representative and country coordinator at headquarters, the Chief of INE/ECC, a delegate from the Grants and Co-Financing Management Department (VPC/GCM) and the Unit or Division Chiefs who will be involved in the projects. Approval of Projects 110 projects and $58.7 million (as of December 31, 2010). (i) SECCI IDB Fund: 62 projects ($34.1 million) (ii) SECCI Multi-Donor Fund: 48 projects ($24.6 million). Sources: “Sustainable Energy and Climate Change Initiative (GN-2435-1),� IDB (2007); “Sustainable Energy and Climate Change IDB Special Program (GN-2435-6),� “SECCI Annual Report (2007-2008),� IDB (2009); IDB (2007); IDB database 82 Annex IV: 64 Applying to Climate Funds Obligations under UNFCC and Key Evaluation Methodologies 171. This Section provides a concise listing of much of what is already required of countries in their obligations under the UN Framework Convention on Climate Change (UNFCCC). Each party to the UNFCCC, for example, is currently obligated to transmit a “National Communication� to the Convention on a recurring basis, in which a country states its needs and priorities, its baseline GHG emissions, and any possible future commitments of emissions reductions.65 172. Countries are also asked to classify their climate actions as either mitigation or adaptation, in which case different paths are followed. For example, to prepare for technical and financial assistance with mitigation, non-Annex 1 countries under the Convention (i.e., developing countries) are encouraged to prepare a report on Nationally Appropriate Mitigation Actions (NAMAs), a tool introduced in December 2007, in Bali, at the 13th Conference of the Parties (COP13) of the UNFCCC. To prepare for technical and financial assistance with adaptation, on the other hand, Least Developed Countries (LDCs)66 are asked to prepare a National Adaptation Program of Action (NAPA) for their urgent and immediate needs, as well as a National Adaptation Plan (NAP) for their medium- and long-term needs.67 173. LDCs are entitled to financial assistance from the UNFCCC’s Least Developed Countries Fund (LDCF) to prepare their NAPAs; in the LAC region, only Haiti qualifies as an LDC. All other developing countries are still encouraged to follow the guidelines and modalities of NAPs in their adaptation planning efforts--which the Adaptation Committee of the UNFCCC encourages both the GEF and bilateral and multilateral institutions to help fund.68 174. In keeping with the views of development experts, as well as with the requirements of the Climate Convention, a study by the World Bank’s Sustainable Development Network several years ago69 concluded that, in conducting a Climate Institutional Assessment (CIA) of a country, five key questions must first be asked: 64 Ibid. 65 See http://unfccc.int/national_reports/items/1408.php. 66 See http://www.un.org/special-rep/ohrlls/ldc/ldc%20criteria.htm. LDCs are defined as (i) being low-income (less than $750 annual per capita), (ii) having a human resource weakness (based on nutrition, health, education, and adult literacy), and (iii) possessing economic vulnerability, based on instability in their agricultural output, their exports of goods and services, and other factors. 67 See http://unfccc.int/national_reports/napa/items/2719.php and http://unfccc.int/adaptation/cancun_adaptation_framework/national_adaptation_plans/items/6057.php 68 See http://unfccc.int/adaptation/cancun_adaptation_framework/national_adaptation_plans/items/6057.php 69 Mani, Muthukumara, Anil Markandya, and Viju Ipe, Policy and Institutional Reforms to Support Climate Change Adaptation and Mitigation in Development Programs: A Practical Guide, World Bank, 2008, p. 17, available at http://siteresources.worldbank.org/EXTEEI/Resources/DCCToolkitCRAlores.pdf.  How strong is the country’s environmental capacity, as measured by its Environmental Performance Index (EPI), CPIA, and Resource Allocation Framework (RAF) score?  How well does the national focal point for climate function? Are all communications with the UNFCCC and other bodies timely and are other reporting obligations fulfilled?  Has the country prepared a NAPA? If so, is it complete and analytically rigorous? How complete are the assumptions and methodology used in the GHG inventories reported in the NAPA?  Are the inventories of GHGs reported in the NAPA internally consistent in all their elements, and with inventories of other years?  Has the country prepared a climate-mitigation strategy (e.g., NAMAs or other strategy) and how well is it rated in terms of completeness and analytical rigor?70 175. Additional issues that merit addressing in a country’s CPIA include:  Does the central agency (e.g., the environment or planning ministry) command sufficient political power to develop and implement sound policies and programs?  Are the institutions supported by sufficient public resources?  Does the climate-change policy team have sufficient human resources to implement the action agenda?  In which ministries other than environment is there a person with some responsibility for integrating climate policy?  How well are the activities coordinated at the national and regional levels?  Are the public and industry sufficiently aware of climate change issues? Are there enough mechanisms to better inform the public and industry about climate-change challenges and opportunities?  Does the country have the infrastructure and institutional systems for meteorological, oceanographic, and atmospheric/space-based systems for proper reporting of climate variables?  Do the institutions have sufficient technical resources, such as data access and management systems, information networks, and means of communication?  Have disaster plans and emergency preparedness been modified to incorporate climate- change-related events?  Does the country have options for insurance against risk from climate change and natural disasters?71  Other climate and development experts interviewed for this Policy Note agree that countries must initially perform analytical work to demonstrate their vulnerabilities to 70 Ibid. 71 These “additional issues to be addressed� in a Climate Institutional Assessment have been reordered from how they appeared in the original. 84 climate change.72 Understanding not only the costs but also the benefits of climate change policies and actions, specialists emphasize, prepares countries to apply for funding but also helps them recognize that responding to climate change is a genuine development opportunity, rather than a pretext to qualify for international aid.  Specialists also underline getting institutional arrangements right. For instance, by including more than one sector, establishing cross-cutting strategies among the planning and other ministries, a positive signal is sent, according to one specialist interviewed.73  The same specialist also explained that a country must prepare for funding domestically by singling out budget items corresponding to different climate activities. This can be done in a bottom-up fashion, as Zambia has done by using a decentralized process in which the authorities took “additional� climate actions over and above business-as- usual,74 or using a top-down approach, as for instance Vietnam did.  Setting priorities domestically, or integrating climate concerns into traditional development, is another important step. For example, if additional environmental criteria are added to development projects, will it undermine traditional development? Or will any added environmental measures have a positive influence on development? Some climate funding, according to one specialist, is not additional to business-as-usual but still requires a different design process from the start. At other times, climate actions truly are additional to traditional development. 72 Interview with Kanta Kumari Rigaud, May 4, 2012. 73 Ibid. 74 Climate actions are considered “additional� if they are above and beyond core development activities, which are otherwise eligible for ODA. If so characterized, climate actions in developing countries would qualify for assistance from the UNFCCC. 85 Fund-Specific Procedures 1. Global Environment Facility (GEF) Trust Fund Project cycle Procedure • A GEF agency submits a PIF to the GEF Secretariat, and then the PIF is circulated among all GEF agencies, STAP, and relevant Convention Secretariats for review. Step 1: CEO Reviews of the • These reviews focus on the following criteria: country Project Identification Form eligibility, consistency with GEF strategies and focal areas, (PIF) comparative advantages of the GEF agency and scale of expected co-financing. • Once the Secretariat has finished its review, the CEO will consider the PIF for inclusion in a work program. • The CEO constitutes the work program from the PIF. • The PIF, including estimated GEF grant amounts, is posted on the GEF website with the work program document. Step 2: Council Approval of Work Program • This work program document focuses on collective contribution to GEF strategies, focal areas and geographic balance, innovative elements, key assumptions and possible risks, and resource programming implications. • The GEF agency sends the project documents to GEF Secretariat for CEO endorsement. The same documents are also transmitted to relevant GEF authorities for internal approval. • The GEF Secretariat reviews these documents; the CEO decides whether the project meets the conditions for endorsement. The documents are then circulated to Council Members. • After addressing concerns from any Council Member with Step 3: CEO Endorsement related parties the CEO endorses the project, and the project documents are posted on the GEF website. • The amount of GEF grant for the project is finalized at this stage, and the GEF agency fee is also approved at the moment of the CEO’s endorsement of the project. (Allocation of Funds) • The Trustee (WB) sets aside funds, including related agency fees to the project, and only commits these funds to the concerned GEF agency after the CEO’s endorsement. • Actual transfer to the agency is made after the Trustee’s commitment and the agency’s approval. • The Secretariat conducts an Annual Monitoring Review based on the Project Implementation Reports submitted by the Agency. Step 4: Implementation, Supervision, Monitoring, and • The GEF agency submits the final evaluation reports to the Final Evaluation GEF Evaluation Office. • The GEF Evaluation Office assesses the adequacy of the project. Source: “Policies and Procedures for the GEF Project Cycle,� GEF (2007) 87 2. Adaptation Fund Project Cycle Procedure • An eligible country can submit a proposal either directly through its accredited National Implementing Entity (NIE) or Step 1: Proposal Submission to through an accredited Multilateral Implementing Entity the Secretariat (MIE). • The proposal is encouraged to be submitted in a fully- developed project document for a one-step approval. • The Secretariat screens the proposal for consistency and Step 2: Screening by the provides a technical review based on criteria approved by the Secretariat Board within 15 working days. • The Secretariat sends the project proposal with its technical Step 3: Review by the Project reviews to Project and Program Review Committee four and Program Review weeks before the AFB meeting. Committee • The Committee reviews the proposal and gives its recommendation to the Board for a decision at the meeting. • The Board approves or rejects a proposal with a clear explanation to the Implementing entities, and the rejected Step 4: Decision-Making by proposal can be resubmitted after consideration of the Adaptation Fund Board (AFB) reasons for rejection. • The proposal approved by the Board is posted on the Adaptation Fund website. • The Secretariat drafts contracts and other necessary agreements with Implementing entities, and provides these Step 5: Contracting by AFB documents for designation by the chair or any other Board and disbursement of funds by member. the Trustee • The Trustee disburse funds the project on the written instruction of the Board, signed by the chair or any other Board member. • The Implementing Entity measures and monitors the results of the executing entities at the country-level. Step 6: Project implementation • All projects and programs being implemented must submit and monitoring by annual status reports to the Ethics and Finance Committee. Implementing Entity (IE) • The terminal evaluation reports are submitted to the Board within a reasonable time after project termination. Note: For regular adaptation projects with funding request exceeding $1 million Source: “The Handbook: Accessing Resources from the Adaptation Fund,� Adaptation Fund (2011). 3. Global Environment Facility (GEF) Earth Fund/Public-Private Partnership Project Cycle Procedure • A platform managing agency submits an Earth Fund Platform Identification Form (EF PIF) including the Step 1: Proposal submission to following important information: rationale and objectives of the platform, expected activities and results, amount of the Secretariat funding from the Earth Fund and co-financing, indicative eligibility criteria for projects, and operational procedures and implementation plan. • The Secretariat initially screens the proposal based on completeness of the application, consistency with GEF strategic objectives and programs, comparative advantage of Step 2: Review from the the agency, estimated costs of projects, and milestones and Secretariat and Board objectives of the platform. • The Board reviews after being screened by the Secretariat and prior to submission to the Council. Step 3: Approval from the • The Council approves the platform by electronic posting on a no-objection basis, and then the GEF CEO endorses the Council and CEO platform. Step 4: Disbursement of funds • The IFC as the trustee of the Earth Fund allocates the resources from the account to the endorsed platform, by the Trustee according to instructions from the Council and GEF CEO. • The platform managing agency uses the resources for implementing individual projects aligned with the platform’s Step 5: Implementation of thematic or operational focus and requirements. individual projects within the platform • Individual projects within the platform should have at least three times co-financing as the original amount of GEF funding. • The platform managing agency monitors and evaluates activities for its platform and the related individual projects Step 6: Monitoring and within the platform; also, the results are reported to the Earth Evaluation Fund. • The GEF Evaluation Office with the GEF Secretariat may establish evaluation requirements for platforms. Source: “The GEF Earth Fund Board Procedures (Pilot Project).� GEF (2009) 89 4. Clean Technology Fund (CTF) Project Cycle Procedure • The WB and relevant MDB conduct joint programming mission to prepare an Investment Plan upon the request from Step 1: Preparation of an an eligible developing country. Investment Plan • The recipient country’s government approves the Investment Plan. • The CTF Trust Fund Committee reviews the Investment Step 2: Review and approval of Plan, and approves MDB designation for operations, the Investment Plan from the eligibility criteria, and priorities for individual projects. CTF Trust Fund Committee • The WB as the Trustee and the designated MDB agrees to cover all projects financed by the fund. • The designated MDB assists preparation of individual projects based on its own operational policies and Step 3: Submission and procedures, consistent with endorsed country program. approval of individual projects • Upon CTF Trust Fund Committee’s endorsement, Trustee commits funding to the MDB. • The MDB signs legal agreements with borrowers after Step 4: Disbursement of funds approval by its Board. by the Trustee • The WB as the Trustee transfers cash to the MDB on request. • The borrower or executing agency implements individual Step 5: Implementation of projects under the Investment Plans upon the legal agreement individual projects within the and project operational manual. Investment Plan • The MDB disburses the funds to individual projects according to its operational policies and procedures. • The MDB supervises and amends project activities, including reallocating loan proceeds, and reports annually to Step 6: Monitoring and the CTF Trust Fund Committee. Evaluation • The CTF Trust Fund Committee reviews and adopts an annual report on the fund operations. Note: The table was adapted from Annex A in pp. 36-38 of the source. Source: “The Clean Technology Fund,� CIF, 2008 90 5. Sustainable Energy and Climate-Change Initiative (SECCI) Funds Project Cycle Procedure • The SECCI proposals are generated by IDB staff (internal channel) or by external applications submitted from public or Step 1: Preparation and private entities. Submission of Proposals • Application forms are submitted through the SECCI website. • Once submitted, a relevant unit expert reviews the proposal on the basis of specific technical requirements. Step 2: Review and approval of • The corresponding country office(s) is notified of interest in the proposal undertaking the project. • The SECCI Eligibility Committee approves the proposal to be financed by the SECCI Funds. • The project leader at the IDB prepares the Letter of Agreement with the client (executing agency). • The executing agency prepares the disbursement requests Step 3: Implementation and submits the documents to the IDB through the corresponding Department. • Disbursement procedures are the same as those of other technical cooperation at the IDB. • The client and/or the project leader is charged with Step 4: Monitoring and monitoring projects and reporting the results to the Reporting Committee. Source: “SECCI Annual Report (2007-2008),� IDB (2009) 91 Annex V: Access to the Global Environmental Facility by the LAC Countries75 Country Project Title GEF Co-financing financing (US$) (US$) Argentina Renewable Energy in Rural Markets 13,500,000 212,000,000 Enabling Activities Leading to the 2nd 1,140,000 710,000 national Communication of the Argentine Government to the Conference of Parties to the UNFCCC Energy Efficiency Project 15,155,000 82,613,000 Introduction of Energy Efficiency and 16,281,800 44,538,500 Renewable Energy Measures in Design, Construction and Operation of Social Housing & Community Equipment Third National Communication to the 2,439,210 615,764 UNDCCC Sustainable Use of Biogas from Agro 2,909,000 21,200,000 Industrial and Solid Waste Applications Argentina Subtotal 51,425,010 361,677,264 Brazil Hydrogen Fuel Cell Buses for Urban 12,274,000 9,169,000 Transport Energy Efficiency Project 20,000,000 180,000,000 Climate Change Enabling Activity 1,500,000 0 Biomass Power Generation: Sugar Cane 3,750,000 2,770,000 Bagasse and Trash Second National Communication of Brazil to 3,400,000 4,175,600 the UNFCCC 75 The Projects listed in the table include all the approved projects for a particular country at various stages of implementation: some are completed, some are being implemented and some approved for implementation Sugarcane Renewable Electricity 7,800,000 62,800,000 Third National Communication to the 5,720,000 6,500,000 UNFCCC Production of Sustainable Renewable 7,150,000 32,700,000 Biomass-Based Charcoal for the Iron and Steel Industry Mitigation Options of Greenhouse Gas 4,180,000 11,890,000 Emissions in Key Sectors in Brazil Biomass Integrated Gasification/Gas Turbine 8,115,000 0 Project Brazil Subtotal 73,889,000 310,004,600 Bolivia A Program for Rural Electrification with 4,211,720 4,056,250 Renewable Energy Using the Popular Participation Law Bolivia Subtotal 4,211,720 4,056,250 Chile Reduction of Greenhouse Gases 1,700,000 0 Sustainable Transport and Air Quality for 6,980,000 7,442,000 Santiago Removal of Barriers to Rural electricity with 5,985,000 26,330,000 Renewable Energy TT-Pilot (GEF-4) Promotion and 2,727,270 32,400,000 Development of Local Solar Technology in Chile Encouraging the Establishment and 2,364,000 12,886,000 Consolidation of an Energy Service Market Promoting Strengthening and Energy 2,637,000 15,810,000 Efficiency Market in the Industry Sector Chile Subtotal 22,393,270 94,868,000 Colombia Integrated National Adaptation Plan: High 5,300,000 11,900,000 Mountain Ecosystems Colombia’s Caribbean 93 Insular Areas and Human Health Low carbon and efficient National Freight 3,000,000 16,200,000 Logistics Initiative Mechanisms for Voluntary Mitigation of 2,700,000 7,616,000 Greenhouse Gas Emissions Catalytic Investment for Geothermal Power 2,727,000 192,900,000 Energy Efficiency Standards and Labels in 2,500,000 7,500,000 Colombia Third national Communication to the 2,000,000 1,682,000 UNFCCC Adaptation to Climate Impacts in Water 4,215,750 23,300,000 Regulation and Supply for the Area of Chingaza – Sumapar- Guerrero Colombia Subtotal 22,442,750 261,098,000 Costa Rica Tejona Wind Power 3,300,000 28,000,000 Costa Rica Subtotal 3,300,000 28,000,000 Cuba Generation and Delivery of Renewable 5,337,000 10,504,000 Energy Based Modern Energy Services Cuba Subtotal 5,337,000 10,504,000 Dominican Stimulating Industrial Competitiveness 1,300,000 7,483,000 Republic Through Biomass-based Grid Connected electricity Generation Dominican Subtotal 1,300,000 7,483,000 Republic Ecuador Power and Communications Sectors 2,150,000 24,710,000 Modernization Rural Services Project Adaptation to Climate Change Through 3,000,000 6,000,000 Effective Water Governance Renewable Energy for Electricity Generation 3,800,000 21,310,000 and Renewable Electrification of Galapagos 94 Islands Ecuador Subtotal 8,950,000 52,020,000 Guatemala Productive Uses of Renewable Energy in 2,550,000 11,675,000 Guatemala Guatemala Subtotal 2,550,000 11,675,000 Guyana Sustainable Energy Program 5,000,000 23,370,000 Guyana Subtotal 5,000,000 23,370,000 Haiti Strengthening Adaptive Capacities to Address 3,500,000 7,000,000 Climate Change Threats on Sustainable Development Strengthening Climate Resilience and 2,727,000 5,300,000 Reducing Disaster Risk in Agriculture to Improve Food Security Haiti Subtotal 6,227,000 12,300,000 Honduras Rural Infrastructure (Electrification) 2,350,000 18,740,000 Competitiveness and Sustainable Rural 3,000,000 21,000,000 Development Project in the Northern Zone Honduras Subtotal 5,350,000 39,740,000 Jamaica LGGE Promoting Energy Efficiency and 2,361,000 4,700,000 Renewable Energy in Buildings in Jamaica Demand Side Management Demonstration 3,800,000 8,700,000 Jamaica Subtotal 6,161,000 13,400,000 Mexico Hybrid Solar Thermal Power Plan 49,350,000 128,300,000 Methane Capture and Use (Landfill 6,230,000 16,620,000 Demonstration Project) High Efficiency Lighting Project 10,000,000 13,000,000 Renewable energy for Agriculture 8,700,000 17,500,000 95 Introduction to Climate Friendly Measures in 5,800,000 6,400,000 Transport Action Plan for Removing Barriers to Full 4,736,000 7,076,000 Scale Implementation of Wind Power Large Scale Renewable Energy Development 25,000,000 247,500,000 Project Integrated Energy Services for Small 15,000,000 81,500,000 Localities of Rural Mexico Mexico Rural Development 10,500,000 127,300,000 SFM Mitigating Climate Change Through 5,000,000 13,525,000 Sustainable Forest Management and Capacity Building in the Southern States Fifth National Communication to the 2,707,540 4,440,000 UNDCCC Adaptation to Climate Change Impacts on the 4,500,000 21,000,000 Coastal Wetlands Lighting and Appliances Efficiency 7,118,600 225,000,000 Sixth National Communication to the 3,636,360 4,000,000 UNFCCC Mexico Subtotal 158,278,500 913,161,000 Nicaragua Adaptation of Nicaragua’s Water Supplies to 6,000,000 31,500,000 Climate Change Promotion of Environmentally Sustainable 3,875,000 60,590,000 Transportation in Metropolitan Managua Off-Grid Rural Electrification for 7,890,000 27,200,000 Development Nicaragua Subtotal 17,765,000 119,290,000 Peru Photovoltaic-Based Rural electrification in 3,930,090 6,872,700 96 Peru Lima Urban Transportation 7,930,000 126,000,000 Rural Electrification 10,000,000 134,950,000 Second National Communication of Peru to 1,800,000 1,012,500 the UNFCCC Nationally Appropriate Mitigation Actions in 4,500,000 29,450,000 the Energy Generation and End-Use Sectors Lighting Market Transformation 1,636,800 8,864,000 Energy Efficiency Standards and Labels 2,000,000 5,150,000 Peru Subtotal 31,796,890 312,299,200 Panama Sustainable and Climate Friendly 1,500,000 12,450,000 development in Veraguas Province Panama Subtotal 1,500,000 12,450,000 Suriname Development of Renewable Energy, Energy 4,400,000 21,500,000 Efficiency and electrification of Suriname Suriname Subtotal 4,400,000 21,500,000 Venezuela Social Integral Development and its 3,635,000 21,244,000 Integration with Climate Change in Watersheds in Lara and Falcon States Venezuela Subtotal 3,635,000 21,244,000 LAC Region Total 435,912,140 2,630,140,314 97