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LEDS Finance Resource Guide – Understanding the situation


Introduction

In order to plan and implement a comprehensive and appropriate approach to mobilizing finance for LEDS and NDCs, a good starting point is to understand the current situation. This will help identify and prioritise the required activities and ensure they are based on a robust and up to date evidence base. Relevant activities to develop such an understanding include looking at current flows of finance, assessing the amount of finance needed to implement the NDC or LEDS, working out what capacities are needed and to what degree they already exist, and identifying barriers hindering investment that need to be overcome. The subsections in this section present a selection of resources to help with these activities.

Featured introductory resource

Planning for NDC implementation: Reference Manual (finance chapter) (CDKN / Ricardo, 2016, 92 pgs total (finance chapter 10 pgs))

CDKN’s NDC implementation Reference Manual (also included in the overall resources in the Introduction section) was produced to support developing countries in implementing their NDCs. Several of the activities identified in the finance chapter (begins on p.68) are relevant to ‘Understanding the situation’: see activities 1 (Review current climate finance landscape), 3 (compile overall NDC costing), and 4 (identify funding needs).

Online version [navigate to the finance chapter]: Access resource here

PDF to download [Guide and Reference Manual combined]: Access resource here

Understanding the situation – subsections

  • Assessing capacity 
    • Resources to help identify and assess the national (mainly government) capacities needed for LEDS and NDC finance

Understanding current flows

An important part of the evidence base for developing a robust approach to financing of LEDS and NDCs is an assessment of current flows of finance into mitigation and adaptation activities. Accurate monitoring of climate finance flows will allow recipient countries to make more informed decisions about planning, prioritization, and allocation of resources for climate change, and to measure and evaluate progress. There is a growing body of work developing methods for countries to track the flows of (mainly public) climate finance within their financial systems and documenting the lessons learned. The resources here provide an introduction into these approaches and guidance on how to get started.

 

Key resources

National monitoring approaches for climate change public finance (GIZ/ODI, 2016, 21 pgs)

This paper describes the opportunities and costs associated with developing monitoring approaches for national climate change public finance. The paper explores the rationale for monitoring climate finance, describes a leading example of climate change budget tracking, presents lessons learned, and summarizes five tools that can support climate change financial monitoring; identifying possible advantages and disadvantages with their use.

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Monitoring Climate Finance in Developing Countries: Challenges and Next Steps (WRI, 2014, 24 pgs)

This paper explores how international finance, including official development assistance (ODA), for climate change is currently monitored in several developing countries. It also seeks to understand some of the challenges and capacity gaps in monitoring climate finance. Drawing on the experiences of developing countries that participated in the study, the paper presents insights about what countries can do to improve the monitoring of climate finance at the national level.

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A Methodological Guidebook – Climate Public Expenditure and Institutional Review (CPEIR) (UNDP, 2015, 72 pgs)

This guidebook seeks to equip relevant stakeholders (governments, donors, CPEIR practitioners) with information on a process, methodologies and tools to conduct a CPEIR, the objectives of which include tracking of climate finance and quantification of climate related expenditures in the budgetary system. The guidebook was developed based on experiences and lessons learned from existing CPEIRs. It provides readers with background on context, purpose, process and tools in implementing a CPEIR together with an overview of the key challenges typically faced during the CPEIR implementation. Section 6.3 provides guidance on tracking public climate expenditure.

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Country examples

Landscape of Public Climate Finance in Indonesia (CPI, 2014, 54 pgs)

The Landscape of Public Climate Finance in Indonesia study was conducted by the Indonesian Ministry of Finance’s Fiscal Policy Agency and Climate Policy Initiative (CPI) in 2013-14. The paper gives an overview of public climate flows in Indonesia and an insight into the significant methodological challenges in tracking and collecting this information.

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The Landscape of REDD+ Aligned Finance in Côte d’Ivoire (CPI, 2017, 48 pgs)

This study by CPI and Impactum was carried out in collaboration with, and to support, the Ministry of the Environment and Sustainable Development’s Permanent REDD+ Executive Secretariat in its work to develop Côte d’Ivoire’s National REDD+ Strategy and Investment Plan. The study identifies the nature and volume of domestic and international public finance that was contributing to limiting deforestation and encouraging sustainable land use in the country in 2015. It contains a detailed overview of the methodology followed and a webinar is also available in French and English.

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Climate Public Expenditure and Institutional Reviews – various countries (UNDP, 2011-15)

This website presents CPEIR reports from over 10 Asian countries who have conducted CPEIRs, including Bangladesh, Nepal, Indonesia and Thailand.

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Assessing financing needs

A key challenge faced by countries is the identification of the finance needed to implement the actions identified in their NDC and LEDS plans. Once the portfolio of priority measures has been determined, the cost of implementing the measures must be evaluated. Some data required for such an assessment will likely already be available from other LEDS development activities, for example simple cost data may be available from marginal abatement cost analyses. While such an approach provides a good starting point, it is important to expand the analysis to account not only for the technology related costs, but also costs associated with setting up the programs and policies, monitoring, enforcement costs, data collection, studies, research, training, and other capacity building and awareness programmes that will be incurred in order to implement the chosen measures. (adapted from 2010 UNDP How to guide on LEDS & NAMAs)

 

Key resources

Enhancing Implementation of Technology Needs Assessments: Guidance for Preparing a Technology Action Plan (UNEP DTU, 2016, 52 pgs)

This is a general guidance document to support developing countries in the preparation of a Technology Action Plan. Section 4 provides high level guidance (c. 3 pgs) on how to estimate the costs and funding needs of specific technology related mitigation actions, and makes a distinction between the funding required to prepare an action, and the funding needed to implement it.

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Methodology Guidebook For the Assessment of Investment and Financial Flows to Address Climate Change (UNDP, 2009, 260 pgs)

UNDP commissioned this Guidebook to support developing countries to undertake bottom-up, national and sectoral analyses of the costs of mitigation and adaptation. The guidebook provides step-by-step guidance on assessing the changes in investments in physical assets and in programmatic measures needed to mitigate greenhouse gas emissions and adapt to climate change in key sectors. Investments range in type and scale from household investments in appliances, and corporate and government investments in infrastructure, to government investments in education and outreach. The approach is designed to be implemented at national level, and is flexible so that it can be adapted to country–specific needs and conditions. The guidebook provides a good basis for evaluating financing needs in the context of LEDS. The User Guidebook, which was developed by UNDP with a group of international experts and regional centers of excellence, comprises:

1) Workplan guidance for preparing for an I&FF assessment;

2) Methodology Guidebook for the Assessment of Investment and Financial Flows;

3) Reporting Guidelines.

Full doc available here: Access resource

Or separate sector chapters (including French, Spanish, Russian versions) available here: Access resource

 

Country examples

I&FF examples

 

National Economic, Environment and Development Study (NEEDS) for Climate Change Project (UNFCCC, 2010-11)

The main objectives of the NEEDS Project were to support participating countries in selecting priority mitigation and adaptation measures, assessing the financing required to implement those measures, and identifying appropriate financial and regulatory instruments to support these measures. 11 countries participated in the project, each producing a country report presenting their identified priority actions and the financing required to implement them. Useful as examples of how other countries have approached this challenge, if not necessarily best practice in all cases.

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Assessing capacity

In order to finance their LEDS and NDCs, countries will need a range of capacities to enable them to plan, coordinate, access funding, implement, and monitor and report. These capacities will exist to different degrees in different countries and will in many cases need to be strengthened. An important preparatory task is to assess the level of existing capacity. These resources can help countries think about how to approach that assessment and what sort of capacities they will need.


Key resources

Readiness for Climate Finance: A framework for understanding what it means to be ready to use climate finance (UNDP, 2012, 32 pgs)

The paper presents a framework for understanding what it means to be “ready” to use climate finance in a transformative way at the national level. The paper identifies four main capacities that countries need: capacity to plan for finance; capacity to access finance; capacity to deliver finance; and capacity to monitor, report and verify (MRV) finance. As such the paper provides a useful framework for countries to consider their own national capacity regarding LEDS finance. The intended audience for the paper is policy-makers at both the international level and national level in developing countries.

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A Methodological Guidebook – Climate Public Expenditure and Institutional Review (CPEIR) (UNDP, 2015, 72 pgs)

This guidebook seeks to equip relevant stakeholders (governments, donors, CPEIR practitioners) with information on a step-by-step process, methodologies and tools to conduct a CPEIR. The guidebook was developed based on experiences and lessons learned from existing CPEIRs implemented by UNDP, World Bank, ODI, and independent CPEIR practitioners. It provides readers with background on context, purpose, process and tools in implementing a CPEIR together with an overview of the key challenges typically faced during the CPEIR implementation. CPEIRs include institutional analysis, which looks at relevant institutions and their existing capacity. See Section 6.2 ‘Institutional Analysis’.

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Guidebook to Multi-Stakeholder Decision-Making (UNDP, 2012, 76 pgs)

[See Part II and Phase 2 on financial scans] The financial scan examines the current financial status of a government, its budget, sources of revenues, and spending responsibilities and evaluates their applicability to LEDS preparation. The structure and policies for financing projects and the outlook for accessing and leveraging funds for future investment projects are also assessed. The example of a local government financial scan found in Annex 5 could be readily adapted for the more complex scenario of a regional or national government.

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Identifying and overcoming barriers

Mobilizing finance for LEDS and NDCs will require a range of barriers to be overcome, barriers that are currently preventing private sector engagement and investment. Identification of these barriers – especially those that relate principally to finance and investment – is therefore an important early step in the development of a comprehensive LEDS or NDC finance plan. Many general LEDS planning resources discuss ways to overcome barriers. These resources focus specifically on how to identify and overcome technical and financial barriers.


Key resources

Addressing the barriers to climate investment (CDKN / UNEP & Frankfurt School Collaborating Centre, Nov 2013, 8 pgs)

This guide summarizes the barriers to financing mitigation and adaptation activities, as well as discussing factors to consider when selecting and implementing financial instruments. Pages 2-3 provide a general introduction to investment barriers, and pages 4-5 contain a table detailing different kinds of potential investment barrier. The key financial instruments and modalities considered in this guide are discussed in relation to the Green Climate Fund, but the lessons are applicable to other channels for climate finance.

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Demystifying private climate finance (UNEP Finance Initiative, 2014, 62 pgs)

Part B of this report highlights the fact that the effective design and implementation of public interventions needs to be guided by a more nuanced understanding of the current barriers to the flows of private finance in developing countries. These barriers, in turn, depend on the type of private finance required, as well as the location of the activity. The report considers three case studies (grid scale renewables; energy efficiency; climate resilient infrastructure) and for each, identifies the current major barriers that prevent private capital from flowing into these projects types, and what interventions can overcome them.

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Derisking Renewable Energy Investment (DREI) (UNDP, 2013, 151 pages)

The DREI framework systematically identifies the barriers and associated risks which can hold back private sector investment in renewable energy. Section 2.1 covers the identification and classification of barriers to investment in renewable energy projects in developing countries. It helps identify barriers according to different stakeholder groups and provides a methodology for quantifying the impact of these barriers on financing costs of the project.
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Overcoming Barriers to the Transfer and Diffusion of Climate Technologies (UNEP DTU, TNA Guidebook Series, 2015, 94 pgs)

This Guidebook is intended to be a starting point for developing country governments, planners, and stakeholders who are carrying out technology needs assessment and technology action plans. The aim is to provide practical and operational guidance on how to assess the barriers to adoption of priority technologies, and on how to address and overcome these barriers through different types of measures.

NB this resource is designed principally to support the development of Technology Needs Assessments (TNAs), but much is likely to be relevant to a wider audience, and it covers both financial and non-financial barriers and their solutions.

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Country examples

Barrier analysis is a common element of the majority of studies focussed on deployment of climate technologies in specific countries, for example:

 

Waste to energy in Indonesia: Assessing opportunities and barriers using insights from the UK and beyond (Carbon Trust / IESR, 2014, 103 pgs)

This report investigates the potential of waste-to-energy (WtE) technologies as a solution to Indonesia’s growing waste and energy challenges, and offers recommendations that address barriers to deployment. Three overarching challenges are identified that focus on the economic viability of facilities, the need for local government capacity building and government coordination, and the social dimensions of WtE. These challenges encapsulate a set of 14 discrete barriers to WtE deployment, each of which are described and related to Indonesia’s unique context in Section 7 of the report. To address the overarching challenges, a set of seven solutions are presented that leverage international examples of best practice.

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