M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 1 55472 D E V E L O P M E N T A N D C L I M A T E C H A N G E Monitoring Climate Finance and ODA THE WORLD BANK 2 Other titles in this series economic evaluation of Climate Change Adaptation Projects -- Approaches for the Agricultural sector and Beyond Beyond the sum of its Parts -- Blending Financial instruments to support low-Carbon Development D E V E L O P M E N T A N D C L I M A T E C H A N G E Monitoring Climate Finance and ODA ii © 2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org/climatechange E-mail: feedback@worldbank.org All rights reserved. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The find- ings, interpretations, and conclusions expressed in this volume 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 judgement on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. RIGHTS AND PERMISSIONS 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; Internet: www.copyright.com. Images by Shutterstock Images LLC M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 27 Annex 1 MAIn InSTRUMEnTS FoR FInAnCInG CLIMATE ACTIon (A=AdAPTATIon; M=MITIGATIon) Climate-specific additional resources under the aegis of UNFCCC Adaptation Fund Funding mainly comes from a 2 percent levy on Certified emission $300-600 million by 2012 A reductions (Cers) issuance. Adaptation Fund Board (AFB) as operating adaptation-fund.org entity served by a secretariat (GeF) and a trustee (WB). Global Environment M largest source of grant-financed mitigation resources. there is a funding Facility (GEF) allocation within the GeF tF to support pilot and demonstration projects $1 billion over 2007­10 (A) that address local adaptation needs and generate global environmental gefweb.org benefits in all GeF focal areas. least Developed Countries Fund (lDCF): helps in the preparation and UnFCCC GeF-administered financing of implementation of national Adaptation Programs of Action to special Funds address the most urgent adaptation needs in the least developed A countries. $270 million special Climate Change Fund (sCCF): supports adaptation and mitigation gefweb.org projects in all developing countries, with a large emphasis on adaptation. Resources from the carbon market Primary CDM transactions: $6.5 billion (2008), $22.9 billion (2002­08) M Voluntary market (OtC): $54 million (2008), $260 million (2002­08) size of Carbon funds and facilities: $16.1 billion.28 Dedicated concessional funding (ODA) from the DAC community the Clean technology Fund: to finance scaled-up demonstration, deploy- Climate investment Funds M ment, and transfer of low-carbon technologies. A the strategic Climate Fund: Pilot Program for Climate resilience to help $6.3 billion climateinvest- build climate resilience in core development, Forest investment Program, mentfunds.org M Program to scale up renewable energy for low income Countries. Notes: 28 environmental Finance and Carbon Finance, Carbon Funds 2009/10 (london: environmental Finance Publications, 2009). (continued) 28 D e V e l O P M e n t A n D C l i M At e C h A n G e $10 billion M&A Cool earth Partnership (Japan) $1.6 billion M&A environmental transformation Fund ­ international Window (UK) $180 million p.a. M&A international Climate initiative (Germany) $580 million M&A Climate and Forest initiative (norway) $180 million M&A international Forest Carbon initiative (Australia) $160 million A Global Climate Change Alliance (european Commission) $135 million M&A international climate Change Adaptation initiative (Australia) $100 million M UnDP-spain MDG Achievement Fund $52 million Un Collaborative Program on reduced emissions from Deforestation and Forest Degradation29 Examples of non climate-specific support from Donors and MDBs Global Facility for Disaster A Partnership within the Un international strategy for Disaster reduction, reduction and recovery focusing on building capacities to enhance disaster resilience and adaptive $15 million for adaptation capacities in changing climate. in addition, there are specific instruments for climate risk management. trust Funds and Partnerships; M Grant financing for knowledge products, capacity building, upstream project Guarantees work/pilots, such as the MDtF for strategic Framework for Development A and Climate Change (under design); partial risk guarantees to support development / adoption / application of clean energy technologies, including those not fully commercialized, in client countries. Notes: 28 see additional information: www.mofa.go.jp/policy/economy/wef/2008/mechanism.html; www.decc.gov.uk/en/content/cms/what_we_do/lc_uk/lc_business/env_trans_fund/env_trans_fund.aspx; www.bmu.de/english/climate_initiative/international_climate_initiative/doc/43517.php; www.regjeringen.no/en/dep/md/selected-topics/climate/the-government-of-norways-international-. html?id=548491; www.climatechange.gov.au/government/initiatives/international-forest-carbon-initiative.aspx; www.europa.eu/legislation_summaries/development/sectoral_development_policies/r13016_en.htm; www.climatechange.gov.au/government/initiatives/international-climate-change-adaptation-initiative.aspx; www.undp.org/mdgf/environment.shtml. iii tABle OF COntents ACKnOWleDGMents v eXeCUtiVe sUMMArY vii Chapter 1 introduction 1 Chapter 2 Current Practices and Challenges in Monitoring 5 Climate-Specific Additional Resources under the Aegis of UNFCCC 7 Resources from the Carbon Market 8 Concessional Funding from the DAC Community Specifically for 9 Mitigation and Adaptation Non-Climate-Specific Assistance from the DAC Community 10 Non-DAC Donor Support 13 Philanthropic Support 13 Resources Mobilized in Developing Countries 14 Non-Concessional Financial and Investment Flows in Public 15 and Private Sectors Chapter 3 relationship between ODA and new and Additional Financing 17 Differing Views 17 Complexity 18 Terminology 18 Current Monitoring Methods 20 Possible Options 20 Redefining ODA or Coining New Terms? 20 iV Dealing with Level of ODA -- Benchmarking? 21 Possible Methods 23 Conclusions 23 Chapter 4 next steps 25 Annex 1 Main instruments for Financing Climate Action 27 (A=Adaptation; M=Mitigation) Boxes 1 MDB Monitoring systems 13 2 examples of Complex Connections between ODA and resources 19 for Adaptation to Climate Change Figures 1 Financial and investment Flows for Climate Action in 6 Developing Countries 2 "ODA Climate" in relation to "ODA Classic" 21 Tables 1 Climate-Change-related Mitigation Aid by DAC Members 12 2 strengthening Climate resilience in Country-led 18 Development Processes 3 DAC Members' Commitments and Performance -- 22 summary table of OeCD secretariat Projections M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 25 4 nEXT STEPS The development community can directly or programs to track bilateral and non-climate indirectly contribute to improving the monitoring specific flows, particularly in the poorest coun- of and access to climate finance through several tries. This could be linked with the process of key activities. improving the quality of National Communications to make them more transpar- The use of Rio Markers for both mitigation and ent. Through their extensive presence in most adaptation needs to be compulsory and consistent countries, access to a range of financial instru- in reporting on all ODA flows by OECD DAC ments, and expertise, the World Bank, other countries. These markers should be refined in MDBs, and UNDP can play an important role in 2015 at the latest, following experience gained in continuing to build the capacity of their partners their application and alternative, more detailed to integrate such monitoring tools into their (preferably quantitative) systems tested by a development plans and to participate in global number of donor institutions. discussions on climate finance issues. Non-DAC donors may wish to consider estab- Development agencies such as UNDP, the U.N. lishing systems that record and report on their Environment Programme, and the MDBs should ODA in a way comparable to that of OECD continue to strengthen the capacity of CDM DAC countries. designated national authorities to record data on the status of CDM transactions and progress on In addition to monitoring and reporting on the CDM investments in developing countries. flows at the global level by OECD DAC, UNCTAD, MDBs, and others, it is important that developing countries themselves be in a posi- MDBs should improve the monitoring and tion to assess the magnitude of the public (DAC reporting on mitigation and adaptation action in and non-DAC) and private sector flows related to their own portfolios in a manner consistent with, climate action. Building this capacity will take but not restricted to, methodologies adopted by time and resources and should be part of broader OECD DAC. 26 D e V e l O P M e n t A n D C l i M At e C h A n G e Monitoring non-ODA climate financing flows (especially non-DAC countries concessional funds and private non-concessional flows) will be an interesting challenge and would help any future assessments of progress made. This should be kept in mind when discussing the role of vari- ous institutions, including those in developing countries, in reporting on such flows. To support developing countries in getting access to both climate-specific and core funds available from various multilateral and bilateral sources, UNDP and the World Bank are working on a joint knowledge platform on the Internet to complement the UNFCCC-led Financing Platform. This will be launched in 2010 and gradually build capacity in providing the following: · A harmonized description of types of funds available, gradually attempting to cover an increasing number of sources · Examples of successful cases of bundling dif- ferent types of grant and concessional funds and of enabling environments to leverage commercial funds · Tools and documents supporting more- informed investment decisions · New tested methods to track climate finance flows at the source and end point (dual tracking). V ACKnOWleDGMents this report has been prepared in response to the recommended actions of the World Bank Group's strategic Framework for Development and Climate Change, Action Area 2: Mobilize additional concessional and innovative finance. it focuses on developing consis- tent and comprehensive monitoring and systematic reporting of financial flows to support developing countries' efforts in mitigation and adaptation, including the provision of new and additional financing for meeting the incremental costs imposed by climate change. the World Bank team was led by Ari huhtala, senior environmental specialist, environment Department, and included stefano Curto, senior economist, Poverty reduction and economic Management network, and Philippe Ambrosi, environmental economist, environment Department. Kseniya lvovsky, Climate Change Program Manager, guided the team in both the process and content of the paper. Peer reviewers at the concept and final draft level were Mehdi Akhlagi and sudhir sharma. Valuable comments were also received from the Organisation for economic Co-operation and Development and the World resources institute and from the partici- pants of a Brown Bag lunch presentation and discussion, held on Monitoring Climate Finance and ODA on March 10, 2010. M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 23 cates the gap against their commitments or the relative share of additional resources. In the provides an indication of the level above coming years, an increasing share of ODA will commitments. qualify for Rio Marker 1. However, the manda- tory and consistent application of Rio Markers by However, interim targets until 2015 might be all OECD countries in reporting ODA could politically sensitive, as countries with ambitious advance the process of distinguishing and track- interim targets may be penalized by such an ing contributions to emerging climate-specific ambition. Benchmarking vis-ŕ-vis the 0.7 percent funds as "ODA Climate." of GNP will be more politically feasible, as it is universal and applicable to all countries, but it is In addition, contributor, recipient country, or technically challenged as many countries are sector-specific portfolio analysis can provide below the target today. The expected ODA level useful indications on trends in the implementa- for 2010 is $108 billion (in 2004 dollars), an tion of international commitments. increase of $28 billion--or 35 percent in real terms--over 2004, with the ODA/GNP ratio As there is currently no universal agreement on rising from 0.26 percent in 2004 to an estimated ODA targets, one possible option could be to 0.34 percent in 2010. Despite this strong perfor- design and introduce voluntary guidelines for mance, ODA for 2010 is expected to fall short of appropriate levels of additional climate finance $18 billion (in 2004 dollars) against aggregate based on agreed criteria (mixing ability to pay commitments even after adjustment for the lower and emissions record) and then apply them to than expected GNP. A second challenge is that track trends by country. the 0.7 percent of GNP has a 2015 deadline attached. Therefore, benchmarking vis-a-vis that target may only make sense after that date. COnClUsiOns As this process continues, somewhere between POssiBle MethODs 2013 and 2015 it will be possible to assess how OECD countries have met their commitments Contributions to climate change in ODA flows on ODA in general and on climate finance in to core multilateral funds and bilateral programs particular. At that time, the issue of baselines and will remain an approximation. The Rio Markers targets can be revisited. An assessment of the introduced to OECD DAC reporting on official usefulness of the Rio Markers and the introduc- development assistance will provide a basis for tion of a well-tested, more refined, and compre- comparing trends over a period of time in overall hensive system should be considered then too. contributions on the one hand and trends in climate financing on the other hand. This will, In summary, the technical solutions for monitor- however, require that they be applied by all ing official (ODA and non-ODA) financial flows donors in a consistent manner. It will still take toward climate action will most likely involve a several years before such consistent data are avail- combination of: able. Also, as noted earlier, Rio Marker 1 (Significant objective) does not give information · Current and improved Rio Markers on the comparative importance of climate action and therefore does not give an accurate picture of · More-consistent reporting by MDBs 24 D e V e l O P M e n t A n D C l i M At e C h A n G e · Reporting by UNFCCC on new funding climate change is extremely complex and proba- through levies, etc. bly not possible in an aggregated fashion. Experience with the GEF and carbon finance has Increasingly reliable, comprehensive, and trans- demonstrated that while maintaining the envi- parent reporting is needed to demonstrate that ronmental integrity of projects, proving the incre- new climate finance instruments are not intro- mental costs related to climate action remains a duced at the expense of those targeting other challenge. In this context, while improving the objectives. monitoring of inputs and development of climate finance flows, it is crucial not to lose sight of the Providing exact and comparable figures on addi- key objective of all official development assis- tional contributions to fund incremental expenses tance: sustainable development outcomes. resulting from adaptation to and mitigation of Vii EXECUTIVE SUMMARY Mitigating and adapting to climate change Following the Introduction, the first major part increases the cost of development. Considerable of this paper focuses on tracking, monitoring, and resources are needed in addition to the present reporting various types of flows, primarily from levels of official development assistance (ODA) ODA and other public sources but also from to complement rather than undermine the efforts private sources. It briefly reviews available infor- and progress toward the achievement of develop- mation on various current and upcoming financial ment objectives, including the Millennium and investment flows to support climate action in Development Goals. The panoply of types and developing countries as a first step in assessing sources of financial flows is extremely broad and the challenges associated with monitoring such includes both new instruments established to flows. It considers both climate finance (the address climate change as well as core develop- amount of additional resources required to cata- ment and investment finance shifting toward lyze the shift of a much larger volume of public low-carbon solutions and adaptation. In this and private development investments to climate- complex landscape, keeping track of financial friendlier options) and underlying finance (the support for adaptation and mitigation will be a almost 10 to 20 times larger amount of financial challenge. and investment flows in developing countries that must increasingly focus on climate action). Following the mandate provided in the Strategic Framework for the World Bank Group (WBG) The next part of the paper focuses on possible on Development and Climate Change, a discus- ways of tracking additionality in ODA flows, sion paper on the challenges related to monitor- with the aim of stimulating a discussion within ing such flows has been prepared by World Bank the WBG and its partners on this issue. It staff in consultation with the secretariat of the describes the various perceptions of different U.N. Framework Convention on Climate Change groups of countries as well as possible baselines, (UNFCCC) and the Organisation for Economic benchmarks, and tools for tracking progress. It Co-operation and Development (OECD). concludes that future technical solutions for monitoring official (ODA and non-ODA) finan- Viii cial flows toward climate action will most likely needed to demonstrate that new climate finance be a combination of current and improved instruments are not introduced at the expense of OECD Development Assistance Committee Rio those targeting other objectives. Markers, more consistent reporting by the multi- lateral development banks (MDBs), reporting by The final section provides proposals for further the UNFCCC on new funding through levies, action by industrial and developing countries, the and an increased capacity by recipient countries U.N. system, and MDBs. to track incoming flows, etc. Increasingly reliable, comprehensive, and transparent reporting is M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 21 able economic development and welfare. projects will remain a challenge (see the Possible Recognizing this inevitability and aiming at Methods section below). improving tracking climate finance also within ODA, the flows for development purposes (as For monitoring "ODA Climate" flows, the same understood) could be called "ODA Classic." A baselines as for ODA could be used. Within this part of voluntary concessional contributions by context, it is important to demonstrate a trend in OECD DAC countries for climate action will development assistance that grows in the direc- continue to be recorded as ODA. To make a tion agreed to in international negotiations and distinction from "ODA Classic," such flows could that does not have a negative impact on ODA be called "ODA Climate." directed toward MDGs. (See Figure 2.) Mitigation will often be linked to measurable GHG targets and commitments, making it easier de Ali ng wi Th le ve l o f od A -- to monitor progress and trends in both action Be nC hm Ar ki ng ? and financing. Thus finding ways to distinguish and track mitigation action as "ODA Climate" Members of the European Union have set will be relatively straightforward. interim targets for their ODA growth before reaching the collective target of 0.7 percent of On the other hand, assistance to developing GDP by 2015. EU Members are aiming to reach countries with adaptation to climate change is a collective total of 0.56 percent of GNI in net closely intertwined with actions targeting other ODA with a minimum country target of 0.51 development objectives, and tracking the share of percent in 2010. Such targets could provide a "ODA Climate" in these cases will not be equally baseline for measuring the change in the contri- accurate. Determining the incrementality of butions of such countries also with regard to climate action in development programs and climate financing. FiGUre 2. "ODA CliMAte" in relAtiOn tO "ODA ClAssiC" TODAY LATER ON Additional support ODA target (e.g., 0.7% GNI by 2015 or interim target) Climate support ODA support Can additionality can be demonstrated There is provision of additional (even if ODA support is growing resources for climate action toward target)? 22 D e V e l O P M e n t A n D C l i M At e C h A n G e Table 3 provides a snapshot of the latest informa- provides the 2010 targets as revised in 2009 to tion on DAC members' commitments set in 2005 take into account the impact of the global reces- in Gleneagles. The first column provides ODA in sion on GNP. The fourth column provides the 2004 (baseline). The second column gives the current forecasts on ODA flows. The difference 2010 targets set in 2005. The third column between the fourth and the third columns indi- tABle 3 DAC MeMBers' COMMitMents AnD PerFOrMAnCe -- sUMMArY tABle OF OeCD seCretAriAt PrOJeCtiOns (APril 2010) Net ODA (2004 USDm) ODA/GNI Growth- 2005 Current 2005 adjusted 2005 Current projection projection Actual projection projection for projection Actual 2004 for 2010 for 2010 Country ODA 2004 for 2010 2010 for 2010 (percent) (percent) (percent) Austria 678 1,673 1,621 1,178 0.23 0.51 0.37 Belgium 1,463 2,807 2,706 2,706 0.41 0.70 0.70 Denmark 2,037 2,185 2,213 2,299 0.85 0.80 0.83 Finland 680 1,475 1,379 1,112 0.37 0.70 0.56 France 8,473 14,110 13,474 10,130 0.41 0.61 0.46 Germany 7,534 15,509 14,906 11,691 0.28 0.51 0.40 Greece 321 1,196 1,275 525 0.16 0.51 0.21 ireland 607 1,121 951 824 0.39 0.60 0.52 italy 2,462 9,262 8,892 3,426 0.15 0.51 0.20 luxembourg 236 328 304 304 0.79 1.00 1.00 netherlands 4,204 5,070 5,323 5,323 0.73 0.80 0.80 Portugal 1,031 933 912 608 0.63 0.51 0.34 spain 2,437 6,925 6,552 5,652 0.24 0.59 0.51 sweden 2,722 4,025 3,865 3,915 0.78 1.00 1.01 United Kingdom 7,905 14,600 13,873 14,185 0.36 0.59 0.60 DAC EU 42,789 81,221 78,245 63,877 0.35 0.59 0.48 members, total Australia 1,460 2,460 2,518 2,460 0.25 0.36 0.35 Canada 2,599 3,648 3,648 3,542 0.27 0.33 0.33 Japan 8,922 11,906 11,906 8,501 0.19 0.22 0.18 new Zealand 212 289 282 324 0.23 0.28 0.32 norway 2,199 2,876 2,849 2,849 0.87 1.00 1.00 switzerland 1,545 1,728 1,646 1,881 0.40 0.41 0.47 United states 19,705 24,000 24,705 24,705 0.17 0.18 0.19 DAC members, 79,432 128,128 125,799 0.26 0.36 0.32 total 108,139 M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 1 1 InTRodUCTIon As the final stage of the Millennium social situation of the world's poor as well as for Development Goals (MDGs) cycle begins, lead- global security and prosperity more broadly. ers of the industrial and developing worlds will meet in New York in September 2010 at the While the development community faces high-level plenary meeting of the sixty-fifth renewed challenges in the fight against poverty, session of the U.N. General Assembly to take hunger, and other human deprivations, new stock of where the world stands on the MDGs global challenges have emerged that also require and the mutual accountability framework laid out the attention of the global community. Some of eight years ago in Monterrey. A critical pillar these--such as climate change or dealing with recognized in the Monterrey compact was the communicable diseases--are quintessentially need for early commitment of additional aid that about "public goods," while others--such as food would help create and secure a virtuous circle by security, water management, migration, energy-- encouraging developing countries to undertake have public-goods features but also pose complex and sustain deeper reforms. Industrial countries challenges calling for global cooperation in order that had not done so were urged to make to find durable solutions. concrete efforts to meet the target of 0.7 percent of gross national income (GNI) as official devel- Over the coming years, the international commu- opment assistance (ODA).1 The deliberations in nity will be confronted with a growing ambition September will most likely emphasize the point to effectively support adequate progress on global that without extraordinary efforts from the devel- public goods, particularly climate change, while opment community, there is a risk that the maintaining its efforts to achieve the MDGs. achievements of recent years will be lost, as the The tension between developing countries' needs development crisis is unfolding with potentially and the limited donor resources is increasingly long-term consequences for the economic and becoming a concern for developing countries worried about the risk of crowding out of some development programs. 1 the commitment to 0.7 percent was first made in 1970 by the U.n. General Assembly. 2 D e V e l O P M e n t A n D C l i M At e C h A n G e The emerging and yet incomplete cost esti- Investment Funds (CIF), etc.) as well as core mates--by public and private sources--of addi- development and investment finance shifting tional investments needed in developing countries toward low-carbon solutions and adaptation. In to tackle climate change are on the order of this complex, ramified landscape, keeping track of hundreds of billions of dollars a year for several financial support to adaptation and mitigation decades. These resources are needed in addition will be a challenge. This is particularly the case in to the present levels of ODA so as to comple- the context of measurable, reportable, and verifi- ment rather than undermine the efforts and able (MRV) support to climate action in devel- progress toward achieving development objec- oping countries. Challenges are multiple and tives, including the MDGs.2 Current climate- encompass at least the following: dedicated financial flows to developing countries, though growing, cover less than 5 percent of the · Comprehensiveness of coverage (funds under estimated amounts that developing countries UNFCCC, climate-specific funds under would need over several decades. other agencies, other bilateral and multilat- eral assistance channels for public sector The Copenhagen Accord of December 2009 flows, and a multitude of private sector noted "the collective commitment by developed financial and investment flows) countries is to provide new and additional · Consistency and harmonization of informa- resources, including forestry and investments tion across many channels with different through international institutions, approaching degrees and levels of detail, frequency of $30 billion for the period 2010­12 with balanced reporting, review processes allocation between adaptation and mitigation.... In the context of meaningful mitigation actions · Relationship between financial flows to sup- and transparency on implementation, developed port climate action and the MDGs. countries commit to a goal of mobilizing jointly As background for this discussion, it is important $100 billion a year by 2020 to address the needs to bear in mind the evolution of the ODA of developing countries. This funding will come concept. ODA is currently defined as those flows from a wide variety of sources, public and private, to countries and territories on the Organisation bilateral and multilateral, including alternative for Economic Co-operation and Development's sources of finance."3 (OECD's) Development Assistance Committee (DAC) List of ODA Recipients and to multilat- The panoply of types and sources of financial eral development institutions, on the condition flows is extremely broad and includes both new that they are: instruments established to address climate change (various U.N. Framework Convention on Climate "i. provided by official agencies, including Change (UNFCCC) funds, the Climate state and local governments, or by their executing agencies; and ii. each transaction of which 2 see World Bank, Development and Climate Change: A a) is administered with the promotion Strategic Framework for the World Bank Group (Washington, DC: World Bank, 2008). of the economic development and 3 Report of the Conference of the Parties on Its Fifteenth welfare of developing countries as its Session, Held in Copenhagen from 7 to 19 December main objective; and 2009, Addendum. Part Two: Action Taken by the Conference of the Parties at Its Fifteenth Session, at b) is concessional in character and unfccc.int/resource/docs/2009/cop15/eng/11a01. conveys a grant element of at least 25 pdf#page=4. M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 19 BOX 2 eXAMPles OF COMPleX COnneCtiOns BetWeen ODA AnD resOUrCes FOr ADAPtAtiOn tO CliMAte ChAnGe technical assistance to plan for shifts and optimization of investments in existing and new energy and transport facilities (through incentives and support schemes) can be considered ODA, whereas the resulting actual investments are a capital flow. All these funds have a developmental impact and the concessional part is in that sense ODA. how should the additional element be measured in the sense that these interventions respond to climate change? technical assistance to identify the scope and methods to expand the carbon market--to stimulate investment in clean technologies, etc. and possibly result in concessional investments--can be consid- ered either ODA or additional resources as it responds to the challenge of climate change and would not necessarily be considered developmental without that challenge. An activity that must be taken only to reduce vulnerability to climate change is not a development invest- ment. Although integration is an effective approach for putting adaptation into practice, adaptation financing needs to reflect that it is responding to the additional burden posed by climate change, quite distinct from the aggregate flow of resources toward overall economic goals (UnFCCC/tP/2008/7 para 97). however, integrating adaptation into national development plans will be more cost-effective if avail- able resources for adaptation and development can be pooled and if existing development processes and mechanisms can be strengthened. Additionality will be difficult to measure in such integrated approaches (hence the scoring system of rio Markers suggested to provide information on the trends and order of magnitude in ODA flows of OeCD DAC countries). Climate change funds under the GeF are only used to meet a project's incremental costs of implement- ing measures covered by Article 4.1 of the UnFCCC. the remaining costs (of national and local benefit) are borne by the recipient country, including through support by other bilateral and multilateral donors. Although the incremental cost principle does not apply to the lDCF or to the adaptation window of the sCCF, a similar principle is applied in that these funds are only available for meeting the additional costs of adapting to climate change. the technology window of the sCCF covers another type of full incre- mental costs, which the GeF defines as "simply the programmatic costs of removing the barriers so that the markets will become established and operate more efficiently." thus, flows from these GeF- administered funds can be considered additional, but countries contributing to them still record their pledges in their ODA. direct response to the climate change challenge. Plan reiterates the need for the generation of new Such funds are not a part of the discussion on and additional resources. Funds sourced interna- additionality with regard to ODA. For example, a tionally through market-based mechanisms and paper by the UNFCCC Secretariat on financing taxation are, by definition, new and additional. states: "In the light of the large disparity between Whether national contributions are new and requirements for funding to address climate additional depends on whether they are drawn change and the level of resources currently avail- from conventional fiscal revenue, and possibly able to meet those requirements, the Bali Action count towards a country's ODA commitment, or 20 D e V e l O P M e n t A n D C l i M At e C h A n G e whether they constitute new revenue from taxes will help to monitor implementation of on fossil fuels or GHG emissions."27 agreements. However, should it happen that OECD countries for some reason cut their ODA contributions while such complementary climate funds grow, in POssiBle OPtiOns total there would not be an additional effect. To make headway in understanding the complex- ities in monitoring climate finance flows, in CurrenT moniToring meThod s improving the accuracy of tracking them, and in addressing the issue of additionality in relation to The Rio Markers are an important initiative to ODA, this section considers several options that improve the monitoring of climate finance flows. are currently part of the international discussion They have their shortcomings, as noted earlier, on this issue. but they do provide an indication of trends and orders of magnitude that can be compared in a time span. They may lead to double counting re de fin in g od A o r Co in in g n ew with other development objectives. Although the Ter ms ? Rio Markers for mitigation have been applied on a trial basis from 2005 and on an institutional Although the context for ODA has expanded basis from 2008, their use has become compul- from economic development and welfare to sory only recently. The Rio Marker for adaptation include environmental sustainability, redefining is being applied from 2010. This means that it ODA would make the monitoring of long-term will take several years before there are data with trends prohibitively difficult and cause a consid- sufficient coverage to allow meaningful analysis erable burden on the reporting institutions. For of all ODA contributors. In the meantime, tests the sake of transparency and comparability of with more comprehensive scoring or marking data, it is advisable to seek other ways to track systems by some donor agencies may yield posi- climate and non-climate contributions within the tive results that lead to a further refinement of existing definition. Moreover, all international the currently applied Rio Marker system to commitments are based on the current definition provide more quantitative data. and might need to be renegotiated to take changes in the definition into account. Thus, the Before systematic data are available from Rio end result might not be different after all. Markers or similar applications, several agencies (including the World Bank) will embark on port- A second way to address the issue of additionality folio review exercises that will provide results on via the composition of ODA is to maintain the ex-post analysis of their core grant or lending current definition and work on a system to programs. Such ad hoc research coupled with measure the trend of specific ODA components. regular data on flows to climate-specific funds OECD countries report resources provided to other countries as ODA if they meet specific criteria (see definition in the Introduction) and not based on the channels through which they 27 UnFCCC, "investment and Financial Flows to Address are provided, as climate change is increasingly Climate Change: An Update," FCCC/tP/2008/7 (Bonn: 2008). considered necessary in the promotion of sustain- M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 3 percent (calculated at a discount rate of paper focuses on the challenges related to moni- 10 percent)."4 toring such flows. The next section focuses on tracking, monitoring, and reporting various types The original concept was developed within the of flows, primarily from ODA and other public context of increasing income and productive sources but also from private sources. Then the assets. This context has changed over time to following section looks at possible ways of track- include other development concerns such as envi- ing additionality in ODA flows, with the aim of ronmental sustainability. When recording ODA stimulating a discussion within the World Bank flows addressing mitigation or adaptation action, Group and its partners on this issue. the challenge is to assess the incremental value of the contribution. Ways should be found to chan- This report will not attempt to provide quantita- nel funds to meet these incremental needs (driven tive information on financial flows, which will be by efficiency, effectiveness, fairness, and equity done in separate future documents by UNFCCC, concerns) and to report on financing allocated to OECD DAC, and others. meet these needs. The question of the baseline for "new and addi- tional" ODA financing (discussed later in this paper) and specific financing architecture will be subject to extensive debate between countries, and no agreement is likely to be achieved in the near future. Irrespective of the outcome of this politi- cal process, financial flows toward climate change need to be recorded and codified in a systematic and mutually agreed manner to allow substantive analysis and reporting, tracking progress made in implementing the Copenhagen and post-Copen- hagen decisions. Following the mandate provided in the Strategic Framework for the World Bank Group (WBG) on Development and Climate Change,5 this 4 Definition from www.oecd.org/ dataoecd/26/14/26415658.PDF. 5 Action Area 2: "Mobilizing additional concessional and innovative finance," states that: "the WBG will address the need for better monitoring climate-related finance by working with the UnFCCC secretariat, UnDP, the Un statistical Division, and the Development Assistance Committee (DAC) of the OeCD on develop- ing consistent and comprehensive monitoring and sys- tematic reporting of financial flows to support developing countries' efforts in mitigation and adapta- tion, including the provision of new and additional financing for meeting the incremental cost imposed by recent inclusion of DAC of markers for mitigation-relat- climate change. this work will build on and extend ed funding in its reporting of bilateral aid. Particular existing initiatives, such as the WBG's annual review of attention will be given to clarifying the sources and the carbon market and carbon revenue flows and the flows of adaptation-related financing." M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 17 3 RELATIonSHIP BETWEEn odA And nEW And AddITIonAL FInAnCInG There are different views on the question of how loans. ODA is meant to help developing coun- to measure additionality of climate change rela- tries achieve the MDGs, and the global commit- tive to official development assistance. While a ment of OECD countries is to allocate 0.7 number of international financing mechanisms percent of their GDPs to this end by 2015. Funds currently under discussion could be regarded as addressing climate change are not a part of this additional and reportable under ODA, for a large commitment. Several developing countries have part of financial flows addressing mitigation or also already taken measures to minimize GHG adaptation action this distinction remains chal- emissions without jeopardizing the goals of lenging. This section discusses the various economic growth and poverty alleviation. These perceptions of different groups of countries as efforts need to be accelerated and scaled up by well as possible baselines, benchmarks, and tools additional funds from industrial countries. for tracking progress, bearing in mind that whichever method for monitoring is adopted, it is Many OECD countries have expressed the view critical to ensure that the scaling up of public that climate financing and development financing financing sources for achieving Millennium are closely linked at the project level and difficult Development Goals and climate change action to separate. Therefore all concessional aid irre- takes place hand in hand. spective of its use should be recorded as a part of their ODA. Some countries also see climate finance as part of their ODA contribution to support the MDGs related to environment. DiFFerinG VieWs The UNFCCC makes clear that industrial coun- Most developing countries consider climate tries have to support developing countries in their change financing as entitlement and not aid. efforts to mitigate GHGs. Specifically, Articles Accordingly, it should be considered as an obliga- 4.3 and 4.5 of the treaty call for industrial coun- tion for those who caused the emissions histori- tries listed in Annex II to provide "new and addi- cally and should not be structured as repayable tional" financial resources to meet the "agreed 18 D e V e l O P M e n t A n D C l i M At e C h A n G e incremental cost" of developing country imple- The complexity of the separation between tradi- mentation of other measures under Article 4.1. tional ODA and additional resources is further illustrated by the examples in Box 2. There are strongly divergent views on the links between the ODA commitments and targets and the climate finance of OECD countries. The Ter mi no log y countries that have reached the 0.7 percent of GNP can easily consider all climate finance as There are incremental costs due to mitigation additional. For those countries still below the and adaptation to climate change that should not commitment or without explicit targets, however, be an extra burden on developing countries and this will be more complicated. The complexity should therefore be covered by additional fund- and possible options are discussed in the follow- ing. However, new funds are not necessarily addi- ing two sections. tional if they result in a decrease of (other) ODA. The following definitions could be used: · New climate finance relates to sources from COMPleXitY which they are raised or channels through which they flow In many situations, it is indeed difficult to sepa- · Additional climate funds are those that rate climate action from development action, exceed existing targets or flows. particularly in the case of adaptation. For Funds accumulated from internationally agreed instance, as can be seen in Table 2, building a levies (such as the Adaptation Fund from CDM seawall against rising waters is clearly an adapta- or possible flows from taxes on aviation, maritime tion action, whereas climate-resilient road transportation, or currency transactions) can be construction has also strong developmental considered new funding as they are raised in implications. tABle 2 strenGtheninG CliMAte resilienCe in COUntrY-leD DeVelOPMent PrOCesses Action Financing Examples Core Development Domestic Budgets plus ODA investments in education & health, income-generation pro- grams; etc. Climate resilient increased ODA plus Additional Accelerated agricultural diversification; climate resilient road Development Climate Finance construction & irrigation systems, climate forecasting; capacity building, etc. Adaptation new & Additional Climate seawalls; dikes; additional shelters & water-storage Finance Note: Adaptation is a priority for developing countries. synergies between climate finance and development finance and win-win opportunities can help enable most effective and efficient adaptation. Source: World Bank. "how Will the World Finance Climate Action?", Bali Brunch, April 2009. M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 5 2 CURREnT PRACTICES And CHALLEnGES In MonIToRInG This section briefly reviews available information private, such as primary Clean Development on various current and upcoming financial and Mechanism (CDM) transactions (essentially investment flows to support climate action in private sector flows from industrial countries to developing countries as a first step in assessing developing ones through a market-based mecha- the challenges associated with monitoring such nism), Global Environment Facility (GEF) grants flows.6 It considers both climate finance (the (multilateral concessional climate-change dedi- amount of additional resources required to cata- cated funding), or domestic resources that lyze the shift of a much larger volume of public governments in developing countries are mobiliz- and private development investments to climate- ing (see announcement by Maldives of a daily tax friendlier options) and underlying finance (the on tourism, with proceeds earmarked for climate almost 10 to 20 times larger amount of financial action). With respect to uses, climate finance can and investment flows in developing countries that cover the additional costs and risks of climate- must increasingly focus on climate action). smart investments and development programs,7 can facilitate enabling policies, regulatory frame- Climate finance can be mobilized through a works, institutions, and markets in support of range of instruments from a variety of sources, adaptation and mitigation, and can support both international and domestic, both public and research, development, and deployment of new technologies. Underlying finance relates to finan- cial and investment flows in developing countries from multiple sources, both public and private, 6 interested readers may consult J. Corfee-Morlot, B. Guay, and K. larsen, Financing Climate Change: toward a Framework for Measurement, reporting and Verification of Mitigation (Paris: Organisation for economic Co-operation and Development (OeCD), 7 Additional needs in developing countries consistent international energy Agency, 2009), which examines in with a +2° Celsius global climate stabilization target depth the availability and quality of information on miti- could reach $140­175 billion per year by 2030, with gation support (comprehensiveness, granularity, con- annual financing needs of $265­565 billion. in addition, sistency, frequency of updating, reporting, and review about $75­100 billion could be required annually over process)--all specifications that are crucial in the con- the next 40 years to support adaptation to the inevita- text of the measurable, reportable, and verifiable dis- ble amount of climate change that developing countries cussion. will experience. 6 D e V e l O P M e n t A n D C l i M At e C h A n G e both international and domestic (e.g., foreign and 3. Concessional funding (ODA) from the DAC domestic private sector investment, national community specifically for mitigation and development budgets, and international develop- adaptation (including through the multilat- ment assistance), that are increasingly put to eral development banks (MDBs)) climate action. 4. Non-climate-specific assistance from the DAC community (including through MDBs) In the long term, the information on climate change financial flows should gradually capture 5. Non-DAC donor support the following--from the more specific flows of 6. Philanthropic support climate finance to the broader, more ramified flows of underlying finance and to lower degrees 7. Resources mobilized in developing countries of concessionality: through internal reform (e.g., putting resources aside out of core budget or fiscal or 1. Climate-specific additional resources under pricing reform) the aegis of UNFCCC (GEF, Adaptation 8. Non-concessional financial and investment Fund (AF), etc.) flows in public and private sectors 2. Resources from the carbon market FiGUre 1 FinAnCiAl AnD inVestMent FlOWs FOr CliMAte ACtiOn in DeVelOPinG COUntries Government Capital budgets markets Development Bilateral Multilateral Domestic cooperation Finance Finance UNFCCC Private sector budgets agencies Institutions Institutions O cial "New and Development Additional" Carbon markets Assistance climate nance CDM Levy funding the Industrialized Industrialized Industrialized Foreign Adaptation countries' ODA countries' countries' emission Direct Fund commitments commitments to reduction Investment "new and oblications additional" nance for climate change Total nance available for climate change mitigation and adaptive initiatives Source: A. Atteridge and others, Bilateral Finance Institutions and Climate Change: A Mapping of Climate Portfolios (stockholm: stockholm environment institute, 2009). M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 15 nOn-COnCessiOnAl So far, the contribution of financial and invest- ment flows of underlying finance to climate- FinAnCiAl AnD smart development is even more difficult to inVestMent FlOWs in quantify than financial and investment flows of PUBliC AnD PriVAte climate finance. In particular, when available (e.g., investment in energy infrastructure in country X), seCtOrs data do not systematically indicate the share of climate-friendly investment. Getting a better These are the very large flows of "underlying picture of underlying finance is critical, however, finance." Gross fixed capital formation (GFCF) in order to monitor the extent of this shift toward in developing countries totaled about $3.99 tril- greener options--notably, to assess the success of lion in 2007, essentially from domestic sources. climate finance instruments in mobilizing Foreign direct investment (FDI) was one order of resources to climate-friendly options. magnitude lower ($522 billion, or 13 percent of GFCF), as was financing via international capital markets, at $718 billion--both of which are not The U.N. Conference on Trade and Development exclusively used for new investment. At $105 (UNCTAD), for instance, publishes annually the billion, aid (ODA and other official aid)--a large World Investment Report, which covers global part of which facilitates but does not directly FDI trends and analyzes in depth one selected finance new investment--was almost two orders topic related to foreign direct investment and of magnitude below (3.3 percent of GFCF).25 development. However, even though information is available at a reasonable level of sectoral detail (although not for every country), it is not possible Current climate-specific flows to developing to know to what extent these investments countries (between $10 billion and $20 billion, as contribute to less carbon-intensive and more highlighted above) represent only a tiny fraction climate-resilient development. The same would (0.25­0.5 percent) of GFCF in developing coun- apply to other international flows (e.g., interna- tries, while expected additional investment needs tional private debt or export credits) or domestic (about $200 billion by 2020, ramping up to investment per sector.26 A few sources provide around $400 billion 10 years later) represent information on some of the green investment about 5­10 percent of current GFCF in develop- (endpoint), as in the case of sustainable energy ing countries (which will presumably and hope- (UNEP SEFI/New Energy Finance), but the fully grow with time). This re-emphasizes the level of disaggregation is not satisfactory. catalytic role of "climate finance": to cover addi- tional costs and risks of climate-friendlier invest- ments and development programs and to create an enabling regulatory, market, and technology environment to make low-carbon and climate- resilient options commercially attractive to investors. 25 All data from World Bank, World Development 26 see discussion in Corfee-Morlot, Guay, and larsen, indicators (Washington, DC: World Bank, 2009). op. cit. note 6. M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 7 The complexity of these flows can be seen from CliMAte-sPeCiFiC Figure 1, which maps financial and investment flows for climate action in developing countries, ADDitiOnAl resOUrCes highlighting the diversity of sources, channels, UnDer the AeGis OF and types of flows. Given the multiplicity of types UnFCCC of flows and their ramifications and information gaps, this section examines both sources and Under this heading are regrouped resources of endpoints as needed. It concludes that getting a the GEF (under the Climate Change focal area, full view of climate-related financial and invest- as the financial mechanism of the UNFCCC), ment flows would be a formidable challenge, the UNFCCC GEF-administered Least given possible inconsistencies across existing Developed Country Fund (LDCF) and Special reporting systems, the many data gaps (with Climate Change Fund (SCCF), and the notably the challenge of identifying the contribu- Adaptation Fund (AF). These funds (with the tions of underlying finance to mitigation and exception of the AF) depend on voluntary contri- adaptation, which unlike specific climate finance butions and are counted as ODA in OECD is not reported as such), and the complex web of DAC countries. More details on these funds are flows (with the possibility of double counting). provided in Annex 1. This section recommends moving forward on The GEF Trust Fund currently devotes about harmonization and consistency of monitoring, $250 million per year to climate change over with the Rio Marker initiative as a useful start. It 2007­10 (GEF-4); since its inception, the GEF also recommends a dual tracking system (on both has invested $2.7 billion to support climate sources and endpoints). Both will require contin- change projects in developing countries and ued efforts to strengthen the statistical capacity of economies in transition, with another $17.2 developing countries. Getting a full view of billion in co-financing.8 As the largest source of climate-specific and climate-related financial and grant financing for mitigation,9 GEF funding is investment flows could undoubtedly help build meant to address the additional costs of climate trust and accountability, as recipient countries action and thereby steer the transformation of could monitor how assistance is delivered in line much larger amounts of development finance to with commitments. In addition to identifying and climate-smart outcomes by focusing on market quantifying climate-related financial and invest- transformation (e.g., barriers removal, risks miti- ment flows, this may also help monitor progress gation, technological innovation, and demonstra- and facilitate the implementation of domestic tion). UNFCCC special funds (about $270 climate-related development priorities, as million altogether) are critical to pilot adaptation measuring success in attracting climate finance projects and generate lessons to scale up climate- and leveraging underlying finance is crucial in resilient growth as resources become available. evaluating which instruments are or may be most For GEF projects, information includes recipient appropriate in this regard. 8 the Global environment Facility (GeF) addresses the incremental costs of projects with global environmental benefits; it is essentially a co-financing source. 9 Most of GeF support is for mitigation, except the strategic Priority to Pilot an Operational Approach on Adaptation, a funding allocation within the GeF trust Fund of $50 million until 2010. 8 D e V e l O P M e n t A n D C l i M At e C h A n G e country, size of grant and total project cost (lever- same period.10 More generally, it is estimated that age), and objective (adaptation or mitigation, active projects that entered the CDM pipeline sector of action). over 2002­08 could represent an investment of more than $150 million, should they materialize. The main source of funding of the Adaptation In comparison, sustainable energy investment in Fund comes from a 2 percent share of proceeds developing countries totaled approximately $80 on certified emissions reductions (CERs) issued billion over 2002­08.11 to CDM projects. Depending on CDM project performance and price, the AF could manage Monitoring potential financial flows through between $300 million and $600 million by 2012, CDM by host countries and technologies (project which will not be sufficient to meet all the needs types) is a challenging task, since the number of for adaptation action in developing countries. primary CDM transactions together with the Hence, other climate-specific funds need to diversity of players involved is increasing dramati- provide windows for adaptation, and core devel- cally. In addition, volumes, prices, and other opment activities need to take climate resilience specifics of transactions (like risk-sharing provi- more into consideration. The AF Board approved sions) are confidential in a more and more the Guidelines for Accepting Donations, which competitive market. Last, a vast majority of outlines the modalities for receiving donor fund- CDM transactions on the primary market are ing in the AF Trust Fund in addition to the forward purchase agreements, with payment on monetization of CERs. The Adaptation Fund delivery of emission reductions: depending on Operational Policies and Guidelines outlines the project registration and performance, the amount monitoring and reporting modalities at the proj- and schedule of payments may prove quite differ- ect level, while a Results Based Management and ent.12 Similarly, it is difficult to get an accurate evaluation system is being developed for portfo- picture of investments in CDM projects: while lio-level monitoring and reporting. their status along the CDM project cycle is public, it is unclear which projects have reached 10 source for both numbers: K. Capoor and P. Ambrosi, resOUrCes FrOM the state and trends of the Carbon Market 2009 (Washington, DC: World Bank, 2009). Global invest- CArBOn MArKet ment estimate is obtained by extrapolating World Bank Clean Development Mechanism (CDM) leverage ratio to estimated global CDM primary transactions. More These resources involve transactions of emission than half of underlying investment is of domestic origin. reductions from projects based in developing 11 source: U.n. environment Programme (UneP) sustainable energy Finance initiative and new energy countries. So far, the Clean Development Finance (seFi), Global trends in sustainable energy Mechanism has been a major catalyst of low- investment 2009 (nairobi: UneP, 2009). estimates of clean energy investments that benefit from CDM tend carbon investment in developing countries, to be higher than actual sustainable energy investment potentially channeling a large flow of new and in developing countries, since many CDM projects are at an early stage (not operational nor commissioned or additional resources. Over 2002­08, about 1,900 even at financial closure) when certified emissions million CERs were transacted on the primary reductions are transacted. market for an approximate value of $23 billion, 12 it is estimated that actual financial flows through the CDM primary market totaled only $1.55 billion over and some $106 billion in low-carbon investment 2002­08 (or about 7 percent of commitments under (of which, $95 billion was in clean energy invest- emission reduction Purchase Agreements). n. Girishankar, innovating Development Finance: From ment) benefited from CDM transactions over the Financing sources to Financial solutions, CFP Working Paper series no. 1 (Washington, DC: World Bank, 2009). M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 13 BOX 1 MDB MOnitOrinG sYsteMs Drawing on their experience in providing economy-wide support for sustainable development and emerging climate finance instruments, MDBs have been responding to growing demand for climate- smart investments and for institutional and policy measures. they are a large source of development assistance with significant climate benefits, and also an important channel of climate finance (GeF, car- bon finance, CiF). Over 2006­07, the MDBs put an estimated $4.2 billion annually into low-carbon investment, with an approximate leverage factor of 3.8--in other words, activity volumes that compare with bilateral ODA. MDBs do not, however, report their activity in any consistent manner across institutions, and information on adaptation is often scarce. Discrepancies, for instance, relate to the classification of sectors/catego- ries or to engagement figures that combine own resources with climate-specific resources and instru- ments (e.g., GeF or carbon finance). in addition, similarly to bilateral ODA activities marked with mitigation as a "significant objective," there is no indication of a specific share of their own resources (be it ODA or not) that is dedicated to climate action. MDBs are actively improving their monitoring systems in this respect, in particular with regard to consistency across agencies. application. The challenge of improving the Rio South cooperation is beginning to provide larger Markers in the long run is addressed later in this amounts of resources for development, particu- report. larly in the productive sectors and infrastruc- ture--two areas with potentially large impacts on future GHG emission trajectories and vulnerabil- ity to climate change. The rise in non-DAC ODA makes even more timely the efforts to nOn-DAC DOnOr improve the monitoring of information about sUPPOrt these flows, in particular in achieving greater comprehensiveness (magnitude of engagement Aid from non-DAC donors continued on a and sources and recipients) and consistency (how strong upward trend in 2007, reaching $5.6 ODA serves a number of purposes, notably billion (for countries reporting to DAC), with climate action). Saudi Arabia accounting for close to 40 percent.19 Among other major emerging non-OECD donors, India's development cooperation expendi- ture was about $1 billion, Brazil's was $437 million, and Russia's $210 million. Official PhilAnthrOPiC numbers are not available for China, but esti- sUPPOrt mates place this number at $1.4 billion.20 South- Private actors, most notably foundations and private companies, are becoming increasingly 19 source: OeCD, Development Co-operation report important players in development finance. Along 2009 (Paris: OeCD). with growing resources, their participation can 20 All data from World Bank, Global Monitoring report emulate innovative partnerships in fundraising 2009 (Washington, DC: World Bank). 14 D e V e l O P M e n t A n D C l i M At e C h A n G e (e.g., using new information technologies to reinforces their importance and the need to better mobilize resources and reach new partners) and coordinate and intensify partnerships to maxi- financial solutions to development. Private finan- mize the impact of assistance. cial contributions for international purposes, as reported to the OECD, climbed to $18.5 billion in 2007 (up 25 percent over 2006 levels), with the United States being the largest source (66 percent).21 These numbers, however, do not resOUrCes MOBiliZeD capture the full extent of private giving, as report- in DeVelOPinG ing is neither exhaustive nor comprehensive (not all DAC countries do report, and beyond DAC, COUntries little information is available).22 Estimates indi- A number of developing countries have put cate that private financial contributions could resources aside from their core budgets or insti- have been as high as $49.1 billion in 2007 (47 percent of ODA that year), with the United tuted fiscal or pricing reform both to advance States accounting for 75 percent.23 development and to limit growth of GHG emis- sions or improve climate resilience. Brazil, for Much less is known about recipient countries and instance, invested heavily in the use of biofuels purposes (whether for climate-related activities or (also for energy security purposes); Thailand has more broadly in climate-relevant sectors). Recent invested in energy efficiency programs. A number data indicate that U.S. foundation giving for of countries are also increasingly factoring climate climate change for international purposes reached change considerations into their natural disaster about $338 million in 2007, or about 6 percent of management strategies. those foundations' estimated international giving.24 One-quarter of these flows funded As they are experiencing the first impacts of policy work. Non-DAC countries received about climate change, developing countries are assessing $327 million, with global programs leading (39 potential and needs, defining measures, setting percent). Data for other OECD countries and beyond are even more fragile. To conclude, goals, and mobilizing finance. For example, though information is scarce, scattered, and Bangladesh and the Maldives have directed their hardly comparable, philanthropic flows to support own resources to protect their coastal regions climate action in developing countries compare to from rising waters, and several countries have certain official multilateral flows in the same area, introduced budget allocations for energy effi- such as GEF or UNFCCC funds so far. This ciency and renewable energy programs. Although important to consider in the context of policies aimed at shifting investment toward a more 21 OeCD database, aggregate "net private grants." climate-friendly outcome, very little information 22 Center for Global Prosperity, the index of Global Philanthropy and remittances 2009 (Washington, DC: at MRV standards is available on energy subsidies hudson institute, 2009), reports recent examples of the rise of philanthropy in emerging economies, and data or agricultural support, two important sectors for from the Gallup World Poll confirm this trend. the climate action. It is crucial to better quantify the exact scope (domestic or international solidarity) is unclear, though. resources that governments in developing coun- 23 Center for Global Prosperity, op. cit. note 22. tries are mobilizing for climate action, in particu- 24 Foundation Center, international Grantmaking iV: An lar to leverage those with other international Update on U.s. Foundation trends (new York: 2008); see specific focus on climate change. instruments of climate finance. M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 9 financial closure and are operational (except for the amount and origin (foreign direct or domes- those who have already been issued CERs). The tic) of investment in CDM projects.13 lack of transparency of the primary project-based market (which is virtually over-the-counter only) is one of the main reasons for State and Trends of the Carbon Market, an annual report prepared by the World Bank with a focus on project-based COnCessiOnAl FUnDinG transactions. FrOM the DAC COMMUnitY While some public buyers (i.e., governments for sPeCiFiCAllY FOr their procurement programs--including funds MitiGAtiOn AnD and participation in funds--and international organizations for the funds and facilities under ADAPtAtiOn their management) achieve a certain degree of transparency (releasing information on the size of Donor support through bilateral and multilateral their carbon procurement programs, what has funds and initiatives has been critical for mobiliz- been committed so far by country or technology), ing resources for climate action over the last two these disclosures tend to be more the exception years, in particular for adaptation. than the rule. Most buyers are not disclosing anything about their carbon portfolio for reasons Approved in July 2008, the Climate Investment of confidentiality and competitiveness. In addi- Funds (CIF)14 is a balanced partnership of tion, however much information there is on CER contributor and recipient countries implementing transactions, it does not give any idea of the innovative climate financing through the MDBs actual payment flows (often contingent on credits to bridge the financing and learning gap between delivery). now and a new global climate change financial architecture. The CIF brings together a number In this context, a solution to improve the quality of emerging initiatives to address climate change, of information could be sought on the seller's side thus providing coherence and avoiding prolifera- through designated national authorities (DNAs), tion of multiple smaller initiatives while increas- which have to approve CDM projects with regard ing impact (and leverage on other sources). With to their sustainable development priorities. In a over $6 billion in pledges from 13 donors, all handful of host countries (notably China), DNAs recorded as ODA, the CIF consists of the Clean play an active role in the CDM cycle and have a Technology Fund (CTF), which finances scaled- good overview of how the instrument can help up demonstration, deployment, and transfer of achieve some national priorities and how sustain- low-carbon technology for significant greenhouse able investment is likely to benefit from CDM. gas (GHG) reductions, and the Strategic Climate Building on this experience, DNAs could record Fund, which finances targeted programs in devel- data on the status of CDM transactions and oping countries to pilot new climate or sectoral progress of CDM investments (provided they approaches with scaling-up potential (so far, receive adequate capacity and support) and could climate resilience, forestry, and renewable energy disclose this information in an aggregate manner to preserve the confidentiality of these figures. 13 this would not be possible for projects developed This could include information on potential along voluntary market standards, which are not regu- financial flows through the carbon market and lated by a sovereign entity. 14 More details on the funds are provided in Annex 1. 10 D e V e l O P M e n t A n D C l i M At e C h A n G e in low-income countries). Climate-specific funds nOn-CliMAte-sPeCiFiC through MDBs have an important role to play in leveraging substantial amounts of financing from AssistAnCe FrOM the other sources: for instance, 13 investment plans DAC COMMUnitY have been endorsed under the CTF, with CTF funding of over $4.4 billion, leveraging over $36 This category encompasses a large range of activ- billion in co-financing in the coming years. ities funded through grants or concessional lend- ing of bilateral agencies in OECD DAC In parallel, donors have established other bilateral countries and through their contributions to or multilateral initiatives, which can be delivered MDBs, including: through MDBs or other executing agencies. Major examples include the Cool Earth · Technical assistance (e.g., analytical work-- Partnership ( Japan, $10 billion), the such as assessment of potential impacts of Environmental Transformation Fund­ climate change for a given sector/region and International Window (UK, $1.6 billion), the options for climate-resilient investments or International Climate Initiative (Germany, $180 identification of mitigation opportunities and million a year), the Climate and Forest Initiative possible financing sources and of mecha- (Norway, $580 million), two initiatives by nisms to address additional costs of low-car- Australia (totaling $315 million), and the U.N. bon growth--or capacity building activities Development Programme (UNDP)-Spain MDG such as awareness raising and training Achievement Fund ($100+ million).15 around carbon finance potentials) · Support to climate-friendly projects (e.g., As these are dedicated initiatives (i.e., the chief wind farms or insurance schemes against purpose is to address climate change) and in a current climate variability), including limited number, keeping track of the projects and through the provision of guarantees and programs they support is reasonably easy. export credits Reporting may not be fully consistent across · Budgetary support (e.g., support to sectoral sources, however, given the diversity of donors or regional development programs that take and the variety of delivery channels. In addition, climate change into consideration). for a number of bilateral initiatives, part of the funds will be distributed through multilateral Given that many development projects or initiatives, making it difficult to draw an accurate programs do deliver climate (co-)benefits (e.g., picture of upcoming climate change resources in energy efficiency improvements, natural resources developing countries. management), tracking ODA contributions to climate action in full is by definition difficult, with the exception of targeted funds and initia- tives as discussed above. In addition, as ODA (as well as other forms of development finance) is increasingly delivered at a programmatic, strategic level (with low-carbon growth or climate resil- ience as one outcome), matching downstream results to specific upstream support is not an easy task (e.g., it is hoped that a policy and institu- tional reform in solid waste management with 15 see Annex 1. M O n i t O r i n G C l i M At e F i n A n C e A n D O D A 11 ODA support translates into better practices and activities (in this case, mitigation) and score its additional investment in more-sustainable waste relevance with three values: 0­Not targeted, 1­ management, with mitigation benefits, but it is Significant objective, or 2­Principal objective. unclear how these benefits can be quantified or Not all DAC members report on the Rio Marker attributed specifically to upstream policy and for climate change, leaving some data gaps. In institutional reform). addition, there is no percentage of aid activity amount associated with these scores: typically, To what extent, then, does other than climate- activities marked as "significant objectives" do not specific bilateral ODA already support address mitigation in their entirety. Therefore, for mitigation?16 The Rio Marker for climate change those who do report, the Rio Marker for climate can provide a qualitative answer by identifying change provides an upper bound of mitigation aid activities that contribute to the objective of support. OECD has embarked on a process of the UNFCCC17 by promoting efforts to reduce assessing and improving the quality of these or limit GHG emissions or to enhance GHG markers. sequestration. The Rio Marker (effectively for mitigation) also provides an estimate of corre- The Joint OECD DAC ENVIRONET and sponding funding.18 In June 2008 (at the end of WP-STAT Task Team has also developed a simi- the 2005­07 trial period), the OECD DAC lar marker to track adaptation-related activities in Working Party on Statistics approved the inclu- bilateral ODA. The World Bank has been a sion of the Rio Markers as permanent items of participant in this process. (Also see Box 1.) The the Creditor Reporting System data collection Adaptation Marker was introduced in 2010. system. Partial data (see Table 1) indicate that Consequently, trends revealed by the applications over the past few years DAC donors have allo- of these markers cannot be meaningfully cated $3­4 billion per year for climate-change- measured until 2014­15. related aid (about 3­4 percent of total ODA). So far the Rio Marker is the most advanced As they report their aid activities to the OECD initiative on measurable, reportable, and verifiable Creditor Reporting System database, DAC financial and investment flows across a range of members also indicate the policy objective of aid countries (on both ends) and sectors. Relatively simple and transparent to apply, the mandatory application of Rio Markers by all OECD coun- 16 if a country on the Development Assistance tries in reporting their ODA could be a source of Committee's list receives sovereign funding on conces- sional terms to promote development, then this can be inspiration in the MRV debate. Those adaptation counted as official development assistance (ODA). or mitigation projects marked with score 2 (prin- Mitigation should logically not be counted as ODA since it covers a global public good and not develop- cipal objective) can be interpreted as being fully ment. however, GeF contributions are considered ODA, so other donor funding for mitigation, such as the dedicated to climate action. However, those Clean technology Fund, is also considered ODA. marked with score 1 (significant objective) can 17 the objective is stabilization of greenhouse gas con- have several other thematic objectives as well, and centrations in the atmosphere at a level that would pre- vent dangerous anthropogenic interference with the it is not possible to assess the comparative impor- climate change system. tance of adaptation and mitigation in overall 18 there are two other similar rio Markers, for desertifi- project objectives. Thus no quantitative assess- cation and biodiversity. the marker system emphasizes the policy objective of an intervention as opposed to a ment is possible, and overall the Rio Markers can sector code that identifies "the specific area of the only provide information on trends and orders of recipient's economic or social structure which the transfer is intended to foster." An activity can have magnitude. Double counting with other policy more than one policy objective. 12 D e V e l O P M e n t A n D C l i M At e C h A n G e tABle 1 CliMAte-ChAnGe-relAteD MitiGAtiOn AiD BY DAC MeMBers (AnnUAl COMMitMents, CUrrent MilliOn DOllArs) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Australia 10 15 14 2 3 3 - 20 21 73 Austria 1 .. 3 4 3 1 9 13 24 10 Belgium 6 2 5 1 1 0 3 14 23 48 Canada 23 10 22 62 79 65 27 2 42 42 Denmark 18 1 4 85 76 71 100 216 93 191 Finland 38 17 14 7 3 2 .. .. .. 39 France 64 10 14 19 5 9 19 200 327 481 Germany 491 847 224 148 202 596 610 870 1,095 .. Greece .. .. .. .. 1 1 1 1 1 12 ireland - - 0 1 1 1 1 .. .. 29 italy .. .. .. .. .. .. .. .. 14 24 Japan 1,373 1,783 1,750 1,087 954 2,293 1,921 2,223 1,407 1,332 luxembourg .. .. .. .. .. .. .. .. .. .. netherlands 46 38 62 153 128 97 265 175 228 .. new Zealand 1 0 0 .. 1 1 2 8 13 3 norway 62 71 42 66 41 57 .. .. .. .. Portugal - - 12 0 0 0 40 2 1 1 spain 2 12 25 6 3 4 .. 27 32 93 sweden 29 18 13 2 7 9 8 3 22 7 switzerland 4 5 5 5 13 18 .. .. 20 33 United Kingdom 106 205 49 - 1 2 - 0 58 51 United states 171 224 168 98 75 119 114 34 31 56 eC .. .. .. .. .. 124 117 150 480 320 Total (partial) 2,444 3,254 2,424 1,745 1,597 3,472 3,236 3,959 3,931 2,844 Percent of ODA 5% 6% 5% 3% 3% 5% 4% 4% 4% 3% Total biodiversity 1126.1 1048.0 890.3 1432.7 1476.2 2085.4 1963.4 2561.6 2834.9 3127.1 (partial) Total desertification 953.2 679.8 554.2 912.2 842.7 1065.3 1362.8 1463.6 1780.5 1032.3 (partial) Note: Grey-shaded cells indicate where only partial information is available. Source: http://www.oecd.org/document/11/0,3343,en_2649_34447_11396811_1_1_1_1,00.html. objectives is also not excluded. Some donor insti- higher degree of detail either through a larger tutions (e.g., the development agency in Belgium) number of scores or through percentages. No are testing systems that attempt to capture a such methodology has so far reached global THE WORLD BANK the World Bank Group 1818 h street, nW Washington, D.C. 20433 UsA tel: 202-473-1000 Fax: 202-477-6391 internet: www.worldbank.org/climatechange