TWN Info Service on Climate Change (Oct12/03)
8 October 2012
Third World Network

Work programme on long-term finance concludes activities

Cape Town, 9 October, (Marjorie Williams) – The ‘work programme on long-term finance’ under the United Nations Framework Convention on Climate Change (UNFCCC) concluded its activities with the holding of a workshop in Cape Town, South Africa from 1-3 October, 2012.

The Cape Town meeting was the second and final workshop which was Co-chaired by Mr. Zaheer Fakir (South Africa) and Mr. Georg Børsting (Norway), who are also Co-chairs of the work programme for 2012. The workshop’s focus was on “Scaling up of climate finance and enhancing enabling conditions (policies and instruments), and delivery and access.”

According to the Co-chairs in their closing remarks at the workshop, the long-term finance work programme contributed to “on-going efforts to scale up the mobilization of climate change finance after 2012 through: enhanced collective understanding of options for mobilizing climate finance and related work on financing needs; increased institutional knowledge on climate finance issues; and valuable knowledge-sharing experience and engagement with policy and climate finance expertise outside UNFCCC negotiations process for possible consideration in the future.”

At the wrap-up of the workshop, the Co-chairs recalled their mandate from the Durban meeting of the Conference of Parties (COP17) in December last year, where Parties decided to undertake a work programme on long-term finance in 2012, including workshops, to progress on long-term finance.

According to that decision, “the work programme aims to contribute to the on-going efforts to scale up the mobilization of climate change finance after 2012; analyse options for the mobilization of resources from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources and relevant analytical work on the climate-related financing needs of developing countries. It will draw its analysis from relevant reports including that of the High-level Advisory Group on Climate Financing and the report on mobilizing climate finance for the G20 and the assessment criteria in the reports, and will also take into account lessons learned from fast-start finance”.

The Co-chairs also informed participants about the previous activities undertaken under the work programme, which began with a first workshop on long-term finance that took place in Bonn, Germany from 9-11 July, 2012, and focused on the climate related finance needs of developing countries and considered emerging early insights from lessons learned from fast-start finance.

They also informed participants that two webinars (web-based seminars) were also held this year - one on 13 September and the other on 21 September. The first webinar dealt with “Various approaches applied to assessment of climate related financing needs in developing countries in the longer term”, while the second webinar dealt with “a range of important issues related to adaptation finance, including sources and options for adaptation finance; elements of design of multilateral funds that exhibit scalability and direct access features; the potential role of private sector in adaptation finance in developing countries, including (the) insurance industry.”

As mandated by COP 17, the Co-chairs said that they would submit a report to COP 18 following a review, analysis and digestion of information generated from analytical and technical discussions.

The second workshop was organised with interactive discussions (in the form of breakout groups and outreach to social media) involving climate finance experts from outside the UNFCCC.

Mr. Sizwe Nxasana, the CEO of FirstRand Limited and Mr. Trevor Manuel, Minister in the South African Cabinet in charge of the National Planning Commission set the scene of the three day workshop with key note addresses (through video link).

Minister Manuel set the political context for the discussions. He said that the issue of long-term finance cannot be deferred to 2020. He added that the commitment to fast start finance of $30 billion and the $100 billion per year by 2020 are targets and that the $100 billion target needs to be broken down into bite size targets.

Manuel noted that additionality (of climate finance) is important and cannot be gotten rid of. The Green Climate Fund has additional responsibility to secure the funds and a mechanism must be found to avoid the voluntary pathways that drove the fast start finance ( the initiative to provide $30 billion for 2010-2012) and which will enhance predictability, certainty and clarity of funding of the Fund. He commented that there was a moral imperative, the backing of science, and certainty of existing decisions on the issue of financing for climate change. The Minister said that, in part, the solution is beyond the UNFCCC, where the right people, at the level of heads of States, must become involved and that no one can escape the responsibility.

Mr. Mattia Romani of the London School of Economics & the Global Green Growth Institute and Mr. Nick Robins, of Hong Kong and Shanghai Bank (HSBC) kicked off the first session of the workshop which focused on the scaling up of climate finance on ‘Sources’.

In his presentation, Romani who also presented at the first LTF workshop cited 6 principles of the UN Secretary-General’s High-level Advisory Group on Climate Change Financing: -
(1) taxing the bad: source of finance from generating externalities; (2) ‘additionality’ as newness or innovative finance; (3) all incidence must be only on rich countries; (4) public sources are needed for adaptation and market failure; (5) scalability, robustness and credibility; and (6) raising domestic revenues in developed countries.

Nick Robins of Hong Kong and Shanghai Bank (HSBC) addressed the workshop through video link. He said that a major barrier to climate finance was the lack of credible market data which is linked to the lack of a common definition of ‘climate finance’. He said that private flows are not a substitute for public commitments but are going to be the largest flow to the developing countries in aggregate for climate finance. He further noted that it was important not to muddle these two areas together and stressed the need to improve the transparency and accountability of private sector investment and financing, including consistent reporting and disclosure of climate impacts and climate actions by investors is important.

Session two on the theme of enhancing enabling conditions: policies and instruments was kicked off by Ms. Amal-Lee Amin, from E3G (Third Generation Environmentalism.) She addressed the issue of barriers to mobilising, scaling up and catalyzing low carbon and climate resilient investment including the role of public policy.

She said that the investment challenge by 2030 included: $10 trillion in additional energy investment (to limit temperature rise to 2 degree C); shifting $26 trillion from high to low carbon energy investment; $145 trillion in infrastructure investment in 2030 needs to be in low carbon climate resiliency; planning investment under uncertainty of the costs of adaptation and iinvestment in major economies mainly in low carbon from 2020.

Amin identified policy, market and technology, and financial barriers which increase the risk and costs of investment, therefor inhibiting investment. Policy barriers, which are seen by investors as the greatest barriers, because it is out of out of their control, include: policy uncertainty and complexity; transaction cost to comply with policy/licensing/reporting etc.; and existing subsidies and policy support for high carbon alternative. Market and technology barriers to investment include: relatively high upfront cost of technology, limitations of support infrastructure (e.g. Grid infrastructure—a capital intensive investment); and immature supply-chain and limited capacity of project developers. Financial barriers to investment include traditional country risk; currency risk and climate specific financial risk such as deal flow problems (for example, insufficient number of commercially attractive deal making diversification of investment portfolio difficult).

The third session of the workshop focused on the theme of enhancing enabling conditions: delivery and access and was addressed by Mr. Josue Tanaka, European Bank for Reconstruction and Development and Ms. Mafalda Duarte, the African Development Bank. Mr. Tanaka presented on the theme of private sector and discussed this in relationship with the EBRD work in Central Europe.

Duarte focused on the closing the infrastructure gap in Africa and identified lessons to learn from the AfDB projects as in the water sector. A portfolio approach that mixes all forms of resources and financing instruments, including , ODA, multilateral development banks, carbon finance and private sector in different combination is needed. Governments have a role to play and public private partnerships are important as a high level of concessional finance is needed especially for large scale infrastructual projects and early stage technology investments that are necessary for climate related actions in Africa. This must be rooted in development (aligned with mitigation and adaptation). Duarte also added that investment in the water sector in Africa is critical and must be integrated to provide energy, food and water supply security.