Who and How to Finance the post-2015
Sustainable Development Agenda?
Yannick Glemarec
Copenhagen, 28 February 2014
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Part I
The mandatory Universality of Sustainable
Development Goals
2
Financing Needs for
Environment and
Climate far exceed
current levels of Official
Development and
Climate Finance
UNDP: Human Development Report 2011/12
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Costs Versus Investment
Source: Global GHG Abatement Cost Curve v2, McKinsey (2009)
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Global investment in clean energy
Source: Bloomberg New Energy Finance (2013)
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The capital intensity of renewable energy
Source: UNDP, Derisking Renewable Energy Investment (2013). See Annex A of the report for full assumptions.
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Renewable energy vs fossil-fuel energy
Developed vs. developing countries
Source: UNDP, Derisking Renewable Energy Investment (2013). See Annex A of the report for full assumptions.
All assumptions (technology costs, capital structure etc.) except for financing costs are kept constant between the developed and developing country.
Operating costs appear as a lower contribution to LCOE in developing countries due to discounting effects from higher financing costs.
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Mandatory Universality
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Creating Attractive Risk/Reward Profile
for Green Investment
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Challenges to Financing the Post-2015 ERA
• Reforming Financial Markets.
• Transforming sector markets efficiently to align
corporate and household finance with global and
national sustainable development goals
• Increasing sources of public finance to create
enabling policy environments and catalyze private
finance
• Enhancing the capacity of developing countries to
access, combine and sequence development finance
to support market transformation
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Part II
Market Transformation for Sustainable
Development
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Market Transformation to Scale Up Green Investment
Source: Yannick Glemarec, 2011
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Selecting a public instrument mix
to catalyse renewable energy investment
Source: UNDP, Derisking Renewable Energy Investment (2013).
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Illustrative modelling case-study for
South Africa (8.4 GW, wind): risk waterfalls
Source: UNDP, Derisking Renewable Energy Investment (2013). Data obtained from interviews with wind investors and developers. See Annex A of the report for full assumptions.
The post-derisking cost of debt and equity show the average impacts over a 20 year modelling period, assuming linear timing effects.
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Illustrative modelling results for
South Africa (8.4 GW, wind)
Source: UNDP, Derisking Renewable Energy Investment (2013). See Chapter 3 and Annex A of the report for full assumptions.
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Financing On-Grid Wind Power Market Transformation
Project Financing
(Illustrative)
Public Instrument Package
(Illustrative – on-grid)
Debt
(lenders, bond
issuance, etc.)
Equity
(from investors)
Select Cornerstone Instrument
Examples:
Auctioning
Construction
Contract
Feed-in tariff
Policy
Derisking
Examples:
Quality standards
O&M skills
Financial
Derisking
Examples:
Loan guarantees
Public loans
Direct
Incentives
Project Company
Operation &
Maintenance
Contract
Off-take Contract
(e.g., a power
purchase
agreement)
Source: Adapted from Principles of Project Finance
Examples:
Dev. Bank
Capital subsidy
FiT premium
Project
Company
Credit
enhancement
Capital
Markets
Public awareness
issues Corporate bonds
Public grants
Soft loans
electricity rates/
PBP
Source: UNDP, Derisking Renewable Energy Investment (2013), adapted.
Climate Bond Financing
(Illustrative)
Source: UNDP
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Part III
New Sources of Finance for Sustainable
Development
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Contribution to 5-year Cumulative
Global GDP (constant 2005 US$)
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North-South Flows
1990-2010
Source: Jenks and Jones, 2013
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Finance Available to
Developing Countries
EU, 2013
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Domestic Revenue Mobilization
• Broadening tax bases
• Fiscal reforms: from fossil fuel subsidies to
polluter fines and reduction of loopholes
• Curbing Illegal flows and aggressive transfer
pricing
• Tapping private wealth
• Commodities and Sovereign Wealth Funds
• Innovative sources of finance: diaspora bonds
and remittance-backed bonds; resources-forinfrastructure;
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Subsidies and Social Spending, 2010
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Climate Finance vs. fossil fuel subsidies
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Sovereign Wealth Funds
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Potential Sources of Innovative Climate Finance
1. Public finance from climate sources
 Phase out of regressive fossil fuel subsidies
 Fossil fuel extraction royalties/licenses
 AAU auction proceeds
 Emission Trading Schemes (ETS) auction proceeds
 Carbon taxes/Carbon export optimization taxes
 Marine and aviation/bunker fuel levies
 Offset levies
 Wires charge on electricity production
2. Public finance from non-climate sources
 ‘Tobin’ tax, taxing revenues from financial transactions
 Leveraging of IMF Special Drawing Rights
3. Carbon markets
4. Other international financing proposals
 Debt for clean energy swap
 International Lottery
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Global Networks and Alliances
• The “Summary of Commitments” of the UN SG
Summit on maternal and child health documents
more than $ 40 billion of promises over a five
year period from:
–
–
–
–
35 countries in attendance;
54 civil society organizations (the Gate Foundation pledged $ 1.5 billion);
Private companies (Merck committed $ 840 million for HIV prevention and treatment);
Multilateral agencies (WHO, GAVI, WB, etc.)
• Similar fluid and dynamic coalitions are
coalescing around all major collactive
challenges.
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ODA in the “Post-2015” Era
• The expanding set of global objectives: Peace, Poverty, Equality and
Environmental Sustainability;
• The New faces of poverty and equity;
• The fiscal capacity of low-income countries, fragile states and some small
island states remain very limited;
• Exposure and countries’ capacities to cope with shocks vary;
• Conflicts and negative development;
• Common and differentiated responsibilities for global commons
(compensation, trade or ODA?);
• A number of innovative financing instruments required a global
cooperation;
• Regional and thematic unbalance of private capital flows;
• Markets are public-private partnerships, not platonic entities from high on;
• The Complexity of Sustainable Development Finance.
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Part IV
Green Finance Preparedness
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Climate Change Finance: Sources, Agents and Channels
Source: Adapted by Yannick Glemarec from Atteridge and others (2009)
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Accessing the Adaptation Fund
•
Direct access is about
developing institutions that
have capacities for financial
management, integrity,
transparency and selfinvestigatory powers;
•
UNDP encourages countries
to develop their institutions to
qualify for direct access.
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UNDP’s Approach to assist countries to plan for, access,
deliver and report on finance for low emission growth
Prepare Green
LECRDS
• Assess needs and
priorities, and
identify barriers
to investment
• Identify policy
mix and sources
of financing
Green Markets
Formation
Development of
Implementation
Capacities
• Directly access
• Implement and
finance
execute project,
programme,
• Blend and
sector-wide
combine finance
approaches
• Formulate
• Build local supply
project,
of expertise and
progamme,
skills
sector-wide
Supporting national systems
through
this
process for
approaches to
• Coordinate
access
finance effectively
implementation
helps countries to use
finance
Monitor, Report &
Verify
• Allows to formulate
transparent sectorwide approaches
climate finance
Building capacities for planning, accessing, delivering and MRV ensures
climate finance is available and effective in all countries
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Formulation of Low Emission
Climate Resilient Strategy
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Financing Transformation Approaches
International Public
Finance (Global Vertical
Funds)
Scaled-up
Mitigation
Actions
=
Policy
& Financial
De-risking
International Public/
Private Finance
(Carbon Markets)
+
Performance
-based
Payments
X
Leveraged Private
Financial Flows
Tax Credits
Carbon Offsets
Domestic Public Finance
(National Climate Funds)
Public/Private Finance
(Tariff premium)
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National Climate Funds to Support Transformative Changes
Strengthening national capacities and
research
Mali National Policy
on Climate Change
Integration of climate change at the level
of sector based policies
STRATEGIC
PLAN 2014
(RESULT
FRAMEWORK)
PROGRAMMERELATED
FRAMEWORK
Mali
National Strategy on Climate Change
(2012-2017)
Integration of climate change at the level
of territorial policies
Incite the private sector to participate in
the national effort regarding climate
change
Mali National
Climate Fund
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UNDP’s support for Green Finance Preparedness in China
Formulate provincial
strategies
Green Markets
Formation
• UNDP supported
formulation of 32
provincial climate
change
programmes to
implement
national strategy
• Identified priority
mitigation and
adaptation
priority measures
and associated
costs
• UNDP supported
development of 2
energy efficient
roadmaps
• Assisted efforts to
gradually develop
a carbon market
including a
national
emissions trading
scheme
Develop
Implementation
Capacities
• UNDP contributed
to the design of
China’s first
climate change
think-tank –
National Centre
for Climate
Change Strategy
and International
Cooperation
Monitor, Report &
Verify
• UNDP supported
development of
national GHG
inventory in
framework of
National
Communications
• Critical for emission
trading systems and
formulation of
transparent
sectoral NAMAs
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Many tools available Online
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