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METHODOLOGY FOR ASSESSING INVESTMENT AND FINANCIAL FLOWS TO
ADDRESS CLIMATE CHANGE IN ST. LUCIA
Grupo del PNUD sobre Medio Ambiente y Desarrollo
INTRODUCTION
Day 1 Introduction and project context Benefits of doing an I&FF Assessment General methodology
Day 2 Sectoral working groups
Day 3 Reporting Elaboration of workplan
Agenda
Train national teams in the use of UNDP Methodology for Assessing I&FF to address Climate Change.
Define final Workplan (outputs and timeframe).
EXPECTED LOCAL BENEFITS:
Incorporate new Government areas into Climate Change analysis.
Develop local capabilities to identify key issues.
Training ObjectivesINTRODUCTION
PROJECT CONTEXT
Why consider Climate Change in development planning
Climate change impacts different sectors, cross-cutting
If not addressed in long-term action, climate change costs will be high
Countries may want to position themselves To ensure that the negotiation outcomes are
coherent with national interests & priorities To be able to participate in the mechanisms
that will be created
Why consider Climate Change in planning
Bali Road Map
Focus on 4 building blocks: Mitigation Adaptation Technology development & transfer Financial resources and investment
Context of climate change negotiations
What is Adaptation?
Closely linked to development Will require adjustments across every
aspect of society, environment & economy Linked to economic development, poverty
alleviation, disaster risk management Requires capacity for short- & long-term
planning
Adaptation & Mitigation
Process of sustainable & permanent adjustment to changing circumstances
What is Mitigation?
Bali Action Plan suggests nationally appropriate mitigation actions by developing country Parties in the context of sustainable development, supported and enabled by technology, financing and capacity-building, in a Measurable, Reportable and Verifiable manner (MRV)
International agreement will be major challenge
Adaptation & Mitigation
“An anthropogenic intervention to reduce the sources or enhance the sinks of greenhouse gases.” (IPCC, 2009)
Bali Road Map – Important outcomes Actions to address climate change are
linked to economic growth & sustainable development goals
Shared understanding for the necessity of common efforts, by all countries
Deadline for negotiations by 2009 New mechanisms & new demands to
countries
Context of climate change negotiations
Key messages of negotiations Importance to show flexibility to support
any new agreement & new financial architecture
Focus on national capacities for Broader participation of various decision
makers Longer term planning Implementing broader programmatic
approaches Understanding the finance & technology
opportunities
Context of climate change negotiations
Importance of planning tools To identify national priorities To facilitate cooperation among different
ministries To build strategies to deal with climate
change To create a coherent base of information
of climate change impacts on and opportunities in key sectors
The project tries to address these points
Project context
Why an I&FF assessment
An assessment of I&FF is important to Understand the magnitude & intensity of
efforts needed nationally to address climate change in key sectors
Facilitate the integration of climate issues into national development & economic planning
Expand the information & knowledge base Contribute to the elaboration of negotiating
positions for international climate negotiations
PROJECT STAGES & SUPPORT
Goals Development of national policy options to address
climate change in key sectors Increased capacity to co-ordinate negotiating
positions at national level & participate in the UNFCCC process
Outcomes National awareness raised Investment & financial flows
assessed for key sectors Web-based knowledge
platform populatedhttp://www.undpcc.org/
Project goals & outcomes
Sequencing of national activities
Pre-workshop preparation (2 months)
National workshop
on Bali Action Plan,
national issues
Assessment of I&F flows to address CC mitigation/adaptation options for up to 3 key economic sectors (6-8 months)
National workshop to present
results, policy
options• Key line
ministries engaged
• Key sectors identified
• National issues papers prepared
National workshop on:
• Bali Action Plan
• Adaptation, mitigation, technology transfer,
financing + LULUCF
• Key sectors
UNDP methodology on assessing I&F flows
Backstopping from regional centres of excellence
• Update on Bali Action Plan negotiations
• I&F flows assessments presented
• Post-2012 preparation
Preparation stage Implementation stage Reporting stage
Define & agree National objectives/goals Key sectors/scope I&FF team Capacities/needs: methods, information… Institutional arrangements On workplan/budget Available scenarios
Preparation stage (1- 2 months)
Conduct I&FF assessment in key sectors selected by the country using the UNDP I&FF methodology and the sector specific guidance & reporting guidelines
Guidance & procedures for Documentation & archiving Spreadsheet management Quality control & quality assurance
procedures
Implementation stage (5 – 6 months)
Ongoing activity, not starting at the end of the assessment
Define outcome (decision making tool, policy tool), target group (internal/external) to draft report
Ensure good drafter for preparation of report(s)
Purpose: documentation of steps and processes for interpretation of outcomes & for later follow-up work
Reporting stage
Support to the 3 stages of the project Work plan guidance Methodological guidance Reporting guidance
Regional Centres of Excellence Training on assessment of I&FF 20 days of technical backstopping incl.
Review of workplan, draft and final assessments
Guidance on scenarios, data, approach
Guidance available + support provided
Guidance available + support provided
Knowledge platformPublic space Database of documents on
climate change Information on the project Dynamic: Users can upload resources;
results and updates “pushed” to site visitors
Member space Faciliate sharing of experiences in groups
(country groups, thematic groups) Private access for national project activities
Checklist
Country checklist Sectors selected
Major information background Draft work plan
Key deadlines?Roles?
TeamIn place?All recommended persons/groups in?
Institutional arrangements in placeTo share dataTo collaborate
Team composition
I&FF ASSESSMENT:
MAIN CONCEPTS
I&FF: Monetary flows needed to implement policy options in key sectors from the national perspective.
Investment Flow (IF): capital cost of a new physical asset (buildings, equipment, software, etc.) with life of more than one year.
Financial Flow (FF): expenditure not related to the purchase of physical assets (typically programmatic expenditures, e.g. vaccination campaign).
Operation & Maintenance Costs (O&M): are estimated for physical assets (salaries, raw materials, taxes, insurance, etc.)
What are Investment and Financial Flows?
I&FF: Example
Sector / Approach
Adaptation/Mitigation Measures
Investment Flows
(FI)
Financial Flows
(FF)
Operation and maintenance
Costs (O&M)
ENERGY (MITIGATION)
Increased energy efficiency
Energy saving appliances
Training programmes for
auditors / Information campaigns
O&M of new appliances
Wind farm Windmills O&M of windmills
WATER (ADAPTATION)
Water conservation Information campaigns
Rainwater harvesting
Storage mediums
(tanks, jars, etc.)
Information campaigns
O&M of storage mediums
COASTAL ZONES (ADAPTATION)
Monitoring of infrastructure
New monitoring equipment
Monitoring campaigns
O&M of new equipment
Raising dock levelsConstruction
costs
O&M of new infrastructure
Who invests? Who finances? Entities and sources
Investment Entity Source of funds
HOUSEHOLDS Domestic Equity and debt
CORPORATIONS
DomesticDomestic equity
Domestic borrowing
Foreign
FDI
Foreign loans
Foreign Aid
GOVERNMENT
DomesticDomestic funds (budgetary)
ForeignForeign loans
Foreign Aid
An internally consistent and plausible characterization of future conditions over a specified time period (2005-2030).
Baseline Scenario: reflects business-as-usual conditions. Describes what can occur without new policies to address climate change.
Mitigation Scenario: incorporates measures to mitigate GHG emissions.
Adaptation Scenario: incorporates new measures to respond to the potential impacts of climate change.
Note: Only one climate and socio-demographic scenario is considered. The only difference between M/A and BL scenarios is that the former consider new measures to tackle CC.
What is a scenario?
Example - Water Sector
Baseline Scenario: provide water to a growing population extracting it from an aquifer (usual practice in the last years).
Adaptation Scenario: Climate Change will reduce aquifer refill, so it is decided to build a dam.
The additional investment flows will be the costs of building the dam (versus the investment needed to keep on extracting water from the aquifer)
Scenarios and policies - Example
Expected product
Year
Additional Annual Sectoral Investments (million 2005 US$)
ADAPTATION MITIGATION
Water Coastal Zones Energy
∆FI ∆FF ∆FI ∆FF ∆FI ∆FF
2005
2006
2007
2008
2009
2010
2011
2012
2013
…
2030
Total
I&FF METHODOLOGY
STEP BY STEP
1. For each sector, evaluate investments and financial flows for two policy scenarios: Baseline Scenario Adaptation/Mitigation Scenario
2. Estimate the additional flows needed to implement new adaptation/mitigation measures (difference between flows in both scenarios).
Methodology: General Vision
Methodology helps define/identify…
What are IF, FF and O&M costs.
Procedures to avoid double counting, compute additional I&FF and present results.
Preferrable information sources.
Additional I&FF needs for key measures in key sectors (no inventory).
National teams should identify themselves…
Key mitigation/adaptation measures from a national perspective.
Key trends/policies to consider in each scenario.
Analytical approach. How to define sector
scope and how to define boundaries if sector overlaps arise.
What policies are needed to implement CC policies.
METHODOLOGY What guidance does it provide?
Steps to conduct sectoral
I&FF
Assessment
METHODOLOGY
Step 1:
Establish key
parameters of the
Assessment
The team should decide:
Sector scope (activities, geographical areas, etc.) and overlaps avoidance
Analysis period
Key mitigation/adaptation measures (preliminary list)
Analitical approach for defining future scenarios
1. Establish key parameters of assessment
Define sector scope - Analize overlaps
WATER
BIODIVERSITY
TOURISM
FORESTRY
ENERGY
AGRICULTURE
Lake overflow Glaciers
Electricity
Oil and gas
REDD Stockbreeding
Coastal zones
Water pollution
Mangroves
BiofuelsTransport
Hydraulic Energy
1. Establish key parameters of assessment
Preliminary measures were identified in National Issues Papers and discussed in the Interministerial Dialogue.
Now measures need to be: Prioritized (according to national criteria) Made quantifiable (“How much does it cost to implement
it?”)
Benefits of the measures need to be identified qualitatively (the assessment is not a cost-benefit analysis - it is not asked to estimate benefits quantitatively).
Identify preliminary adaptation/mitigation measures
1. Establish key parameters of assessment
Suggestions:
Base year: 2005
Horizon: 2030
Use constant 2005 US dollars (and discount flows)
Use up to 2 discount rates per sector:- Public rate (used in public projects)- Private rate- When analysing Climate Change impacts, theory
suggests not to use a discount rate higher than 3%.
Subsidies: optional
Define base year and assessment period1. Establecer los
parámetros clave de la evaluación
1. Establish key parameters of assessment
Suggestions:
Use analytical models only if they are usually applied within the sector.
Projection alternatives: Sectoral plans Observed tendencies Scenarios included in National
Communications or strategic studies Current situation
Define analytical approach for projections1. Establish key parameters of assessment
What should we have at the end of Step 1?
Precise definition of sectoral scope (including overlaps analysis).
List of key adaptation/mitigation measures to value.
Analytical method to estimate/project sectoral tendencies (model, current scenario projection, existing development plan, etc.)
1. Establish key parameters of assessment
Step 2:
Compile historical I&FF
data and other inputs for
scenarios
Compile historical annual data (I&FF and O&M) to address the following questions:
1. How much was invested in each sector (in recent years)?2. What are the main types of investment in each sector?3. Who has undertaken the investment?4. What is the usual life of investments and duration of
programmes?
Suggested period: 1995-2005 (and 2006-2008 if information is available).
Data should be collected for 3 - 10 years.
Compile annual I&FF data
2. Compile historical I&FF data and other input data for
scenarios
Step 3:
Define Baseline
Scenario
Describe what is likely to occur in the absence of ADDITIONAL policies to address climate change
Baseline scenario should reflect Current sectoral & national plans Expected socioeconomic trends Expected investment trends (for each
subsector)
3. Define Baseline Scenario
Step 4:
Derive I&FF and O&M
for baseline scenario
Estimate I&FF for the sector up to 2030
Information should be disaggregated by:
Year Investment entity (Corporations,
Government) Source of funds (national, FDI, official
development assistance)
4. Derive I&FF for baseline scenario
4. Derive I&FF for baseline scenario
Expected product (example Water sector– year 2010)
Entidad inversora Fuente de FI&F
BASELINE SCENARIO
Expected I&FF - year 2010
WATER SECTOR
Dam constructionInformation campaign for water efficient use Total Inverstments
IF FF O&M IF FFO&M IF FF O&M
HOUSEHOLDS Domestic Equity and debt
CORPORATIONS
Domestic
Domestic equity
Domestic borrowing
Foreign
FDI
Foreign loans 1000 1000
Foreign Aid
Total Corporations
GOVERNMENT
DomesticDomestic funds (budgetary) 300 300
Foreign
Foreign loans
Foreign Aid
Total Government
TOTAL 1000 300 1000 300
Step 5:
Define Mitigation/
Adaptation Scenario
Describe a situation where new measures are taken to adapt to/mitigate Climate Change.
5. Define Adaptation/Mitigation scenario
Define adaptation/mitigation scenario
1. Reevaluate and reprioritize the mitigation/adaptation measures previously defined according to: Develpment plans/experience. Technological and sociodemographic tendencies
identified for baseline scenario. New information gathered during the project.
2. Include qualitative information regarding benefits (health, other sectors, etc.)
3. Redefine measures in order to clasify them in: “New” measures (eg.: new dam) Measures that are “extensions” of measures
included in baseline scenario (eg: bigger dam)
5. Define adaptation/mitiga
tion scenario
Step 6
Derive I&FF for
Adaptation/Mitigation
Scenario
Project the I&FF and O&M associated with the mitigation/adaptation measures selected.
Disaggregate flows by:Year Investment entity and source,
6. Derive I&FF for Mitigation/Adaptation Scenario
6. Derive I&FF for adaptation/mitigation scenario
Example - Adaptation in Water Sector Annual flows
Year
WATER SECTOR – ADAPTATION SCENARIO
ANNUAL FLOWS
Measure.: Flood control
Building of a bigger dam (than planned in
the BS) (IF)
Education programme (FF)
O&M (of dam)
2005
2006
2007
2008
2009
2010 1500 100
2011 1500 100
2012 1500 100
2013 100 100
2014 100 100
2015 100 100
2016 100 100
2017 100 100
2018 100 100
2019 100 100
… … …
2030 100 100
Total (cumulative 2005-2030) 4500 2000 1800
Investment Entity Source of funds
WATER SECTOR – ADAPTATION SCENARIO
I&FF AND O&M – YEAR 2010
Measure: Flood control
Building of a bigger dam (than planned in the BS)
(IF)
Education programme for risk management
(FF)Total Investments
IF FF O&M IF FFO&M IF FF O&M
HOUSEHOLDS Domestic Equity and debt
CORPORATIONS
Domestic
Domestic equity
Domestc loans
Foreign
FDI
Foreign loans 1000 1000
Foreign aid
Total Corporations
GOVERNMENT
DomesticDomestic funds (budgetary) 100 100
Foreign
Foreign loans
Foreign aid 500 500
Total Government
TOTAL 1500 100 1500 100
6. Derive I&FF for adaptation/mitigation scenario
Example - Adaptation in Water Sector Year 2010
Step 7:
Estimate additional I&FF
needed to implement
Adaptation/Mitigation
measures
Subtract the baseline I&FF from the mitigation/adaptation I&FF.
7. Estimate additional I&FF needed to implement adaptation/mitigation
Estimate additional I&FF7. Estimate
additional I&FF for adaptation/mitigati
on
Additional I&FF = I&FF estimated for Adaptation/Mitigation Scenario
minus I&FF estimated for Baseline Scenario
I&FF are estimated for:
Each of the sectors selected (per year - cumulative) Each of the adaptation/mitigation measures selected:
New investment and programmes: additional I&FF are total costs
Extended investment and programmes included in baseline: additional cost given by difference of I&FF in adaptation/mitigation and baseline scenarios
All investments and all programmatic expenditures (detailed per investment entity and financing source)
Estimate additional I&FF – Example (year 2010)
Investment entity Source of I&FF
BASELINE SCENARIO - WATER SECTOR - 2010
Dam construction Infomration campaign for efficient water use
IF FF O&M IF FF O&M
C0RP. Foreign loans 1000
GOV.
Domestic Domestic funds 300
Foreign Foreign aid
TOTAL 1000 300
Investment entity Source of I&FF
ADAPTATION SCENARIO - WATER SECTOR - 2010
Construction of a bigger dam Education programme for risk management
IF FF O&M IF FF O&M
CORP. Foreign loans 1000
GOV.
Domestic Domestic funds 100
Foreign Foreign aid 500
TOTAL 1500 100
Investment entity Source of I&FF
ADDITIONAL ADAPTATION COSTS FOR WATER SECTOR - 2010 (Adaptation scenario I&FF – baseline scenario
I&FF)
Construction of a bigger damEducation programme for risk management
IF FF O&M IF FF O&M
CORP. Foreign loans 1000 - 1000 = 0
GOV.
Domestic Domestic funds 100-0=100
Foreign Foreign aid 500 - 0 = 500
TOTAL 500 100
7. Estimate additional I&FF for adaptation/mitigati
on
investment entity
Households Corporations Government
baseline scenariomitigation scenario
additional investments
less investments
Projected amountof I&FF(in US$)in a year
additional investments
Example: How annual mitigation investments would change (per year)
Presentation of results
7. Estimate additional I&FF for adaptation/mitigati
on
7. Estimate additional I&FF for adaptation/mitigati
on
Step 8:
Evaluate policy implications
Reevaluate adaptation/mitigation measures, given costs and national development objectives.
Identify the entities responsible for incremental changes in I&FF and the main sources of investment/programme funding
Determine policy instruments and measures to encourage changes in I&FF.
Discuss potencial implementation barriers.
8. Evaluate policy implications
Step 9:
Sinthesize results and
complete Report
Objectives of reporting:
Compare additional I&FF between sectors, years, entities and sources and between adaptation and mitigation.
Provide relevant information for decision making at local level
Compare results among countries.
9. Sinthesize results and complete Report
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