National Climate Funds

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Where do national climate funds matter?

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• Objective of this session

• Key elements of National Climate Fund(s)

• Examples of existing National Climate Funds• Bangladesh• Indonesia• Rwanda

• Key questions

Content

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What you can expect to learn from this session

• Learn about some of the key elements of national climate funds

• Reflect on the lessons learnt from existing national climate funds

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Key elements of National Climate Fund(s)

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Taking a decision on establishing National Climate Fund(s)

Source: UNDP 2011UNDP Asia Pacific Regional Center 2012

There are different modalities with which to channel climate finance…

• Through direct budget support:- A share of international climate finance is already flowing through the formal

budget system in a number of countries, e.g. Lesotho, Mauritius, the Seychelles, Solomon Islands, Bangladesh , Nepal, Thailand etc.

• Using existing funds or public institutions- Creating special funding window / program for climate change activities within

existing public fund or bank, e.g. Mexico green mortgage program for energy efficient housing

• Setting up National Climate Fund(s)- Establishing a new institution, specialised in climate change only, e.g. Bangladesh,

Rwanda, Cambodia etc.

• Combination of several modalities is possible and often necessary

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Establishing National Climate Fund(s)?

Source: UNDP 2011UNDP Asia Pacific Regional Center 2012

A careful assessment is needed before taking a decision on establishing National Climate Fund(s)

Strategic roleNational Climate Fund(s) should achieve climate and development objectives in a more effective way than through other modalities

Political feasibility

Strong legal basis is required for establishment and operationalisation of the National Climate Fund(s)

Institutional and human capacity

Sufficient capacity to manage National Climate Fund(s) effectively and transparently is required

TimingEstablishment + operationalisation of the fund(s) must be achieved in a timely in order to meet national objectives (normally it takes a minimum of several years)

Financial sustainability

Ensuring cost-effectiveness of the fund(s) and the long-term strategy on resource mobilisation

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National Climate Fund – (inter)national contributions

Source: UNDP 2011; Flynn 2011

11Source: UNDP Asia Pacific Regional Center 2012

Definition

Types of funds

Examples

Sinking fund • Cambodia Climate Change Alliance Trust Fund

• Indonesia Climate Change Trust Fund

Principle capital and investment income is consumed over a fixed time period

Revolving fund • Thailand Energy Conservation Promotion Fund

• China Clean Development Mechanism Fund

Principal capital and investment income are consumed entirely, but replenishment sources exist and contribute to the fund

Endowment fund

• Bhutan Trust Fund for Environmental Conservation

Principal capital is kept in perpetuity and not consumed, only the investment income is used to provide grants

Mixed structure • Micronesia Conservation Fund• Tuvalu Trust Fund

Combination of endowment fund and sinking fund or endowment fund and revolving fund characteristics

Type

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Legal Arrangements

Legal Arrangements – a fund can be …

an extension of government administration• e.g. Thailand Energy Conservation Promotion Fund – secretariat is within the

Energy Policy and Planning Office

managed by an independent body • e.g. Bhutan Trust Fund for Environmental Conservation – the Director and the

secretariat staff are non-civil service positions

formed as a private corporation or non-profit organisation• e.g. Micronesia Conservation Fund – registered as a non-profit corporation

operated like a programme implemented by a multilateral agency• e.g. Cambodia Climate Change Alliance Trust Fund – managed UNDP as a

fund administrator

Source: UNDP Asia Pacific Regional Center 2012

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Designing and Establishing a National Climate Fund

Key decisions to make:

Source: UNDP 2011; Flynn 2011

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Examples of existing National Climate Funds

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Text a

Text

Text Text

Fiduciary Manager: World Bank

• Governing Council• Management Committee• Secretariat• Expert Panel

Public national, bi- and multilateral contributions (inc. Denmark, Sweden, EU, UK)

Adaptation finance

Key Decisions to Make: Bangladesh Climate Change Resilience Fund Example

Objectives

Capitalisation

Governance

Fiduciary Management

Implementation Arrangements

MRV

Baseline, mid-term and annual evaluation

• Implementation by the ministries

• Technical support by the World Bank

• ~10% of funding to civil society for mechanisms to increase resilience; managed by a microfinance institution

Source: UNDP 2011

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Example Bangladesh: Two Parallel Funds

Proliferation of funding to implement Bangladesh Climate Change Strategy and Action Plan (BCCSAP) 08/09:

• Bangladesh Climate Change Trust Fund (BCCTF) • By the National Government• US $100 million per year (09/10-10/11), • starting with 66 projects (38 Gov. / 28 NGOs).

• Bangladesh Climate Change Resilience Fund (BCCRF) • Supported by various donors • Today about $170 million: Australia ($7 million), UK ($95 million) Denmark ($1.2

million), Sweden ($13 million), EU ($37 million), Switzerland ($3.4 million) and United States ($13 million).

• Management of the donor-led BCCRF was heavily contested• Effort to set up a management mechanism for the fund in which the GoB has

confidence, and which ensures that key decisions are made within the countrySource: UNDP 2011

http://bccrf-bd.org/

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Text

Text Text

National Trustee (UNDP as Interim Trustee)

• Technical Committee & Secretariat

• Steering Committee • National Trustee• Implementing Agency

Public national, bi- and multilateral contributions (UK, Australia, Sweden, UNDP)

• Achieving low carbon economy and climate change (CC) goals

• Enhancing effectiveness in the leadership and management of addressing CC

Key Decisions to Make: Indonesia Climate Change Trust Fund Example

Objectives

Capitalisation

Governance

Fiduciary Management

Implementation Arrangements

MRV

• Administrative, financial and programmatic monitoring

• UNDP M&E model adopted

• Implementation by the Executing Agencies (ministries, local governments, PPPs, etc.)

• Administered by the National Development Planning Agency (BAPPENAS)

Source: UNDP 2011

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Example Indonesia: ICCTF funding and allocation structure

Source: http://www.icctf.or.id/

Swedish International Development

Cooperation Agency

UK Department for International Development

Australian Agency for International Development

UNDP

Indonesia Climate Change Trust Fund (ICCTF)Total budget - $11.3 million

Projects funded by ICCTF($4.6m)

Support and development

of ICCTF($0.08m)

Remaining funds($5.8m)

Sustainable Peat Land Management

(Ministry of Agriculture)

Energy Conservation(Ministry of Industry)

Public Awareness on Climate Change

(BMKG)

$0.3m$9.5m $1.4m

UK Department for International Development

$0.08m

International support

Budget structure

Projects / Implementing

entity

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Example Indonesia: ICCTF institutional structure

Source: http://www.icctf.or.id/

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Text a

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The Fund Management Team, reporting to Rwanda Environment and Management Authority, and UK Department for International Development (DFID)

• Management Committee• Technical Committee• Secretariat, the Fund

Management Team

Environmental fines and fees, public finance and international donor (UK) contributions

Sustainable wealth creation and poverty reduction through sustainable managementof natural resources, climate resilient and green economic growth

Key Decisions to Make: Rwanda Environment and Climate Change Fund Example

Objectives

Capitalisation

Governance

Fiduciary Management

Implementation Arrangements

MRV

• Monitoring on continuous basis

• Reporting on a quarterly basis with annual review

• First evaluation after two years, then external evaluation every 3 years.

• Administered by the Fund Management Team

• Implemented by project promoters (government entities, private sector, civil society)

Source: UNDP 2011 http://www.fonerwa.org/

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Example Rwanda: FONERWA funding and allocation structure

Source: http://www.fonerwa.org/ *Exchange rate GBP1.0=Rwf1,113.1 (http://www.oanda.com/)

National public stakeholders

Environmental fines, fees and other revenues

Proceeds from Forestry and Water Funds

UK Department for International Development

Private sector

Rwanda Environment and Climate Change Fund (FONERWA)

GuaranteesProposal

development support

Grants Loans Innovative financial

instruments

4. Environmental Impact Assessment (EIA) Monitoring &

Enforcement

1. Conservation & Sustainable Natural

Resources Management

2. Energy, R&D & Technology Transfer & Implementation

3. Environment & Climate Change Mainstreaming

£22.5m (USD 37.7m)£1.4m (USD 2.3.m)*

International and national

sources

Instruments

Funding windows

Planned Planned Planned

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Example Rwanda: FONERWA institutional structure

Source: http://www.fonerwa.org/

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Diversity in fund design

Source: GIZ 2012

Institutions

Fund policies

Ownership

Fund management

Financial management

Scope

Scale

Financial instruments

Funding source

Existing institution(s)

Simple, non-prescriptive

National prioritisation

Political institution

Nationally managed

Multi-sector

Small (<$50 million)

Grants

Domestic funding

New institution

Complex, prescriptive

Funder prioritisation

Financial institution

Donor-managed

Sector-specific

Large (>$50 million)

Loans, equity etc.

International funding

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Key Tasks when establishing National Climate Funds

Institutional set-up

1. Organizational and institutional development

2. Human resources development

3. Needs assessment

Allocation &

Funding

4. Development of policies / strategies / guidelines

5. Creating funding windows

6. Development of project pipeline

Operational quality and

M&E

7. Quality management

8. Knowledge management

9. M&E10. Financial

management

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Key Questions

• What are the key finance institutions in your country?

• Which are the priority areas to address when establishing a national fund?

• Howe can already established structures learn to involve the private sector?

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Thank you for your attention!!!

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References and useful literature

Flynn, Cassie (2011). Blending Climate Finance through National Climate Funds: A guidebook for the design and establishment of national funds to achieve climate change priorities. United Nations Development Programme, New York, NY, USA

Glemarec, Yannick (2011). Catalyzing Climate Finance – A Guidebook on Policy and Financing Options to Support Green, Low-Emission and Climate- Resilient Development, United Nations Development Programme.

Irawan S, Heikens A, Petrini K (2012) National Climate Funds: Learning from the experience of Asia-Pacific countries. UNDP Discussion Paper

GIZ (2012). It’s not just the money: institutional strengthening of national climate funds. Discussion paper.

United Nations Development Group (2011), UNDG Guidance Note on Establishing, Managing and Closing Multi-Donor Trust Funds.

Bangladesh Climate Change Resilience Fund (http://bccrf-bd.org/)

Indonesia Climate Change Trust Fund (http://www.icctf.or.id/)

Rwanda Environment and Climate Change Fund (http://www.fonerwa.org/)

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BACK UP

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1. Organizational and Institutional Development • Set up project management unit (PMU)/secretariat; • set up a results-based management (RBM) system for planning projects; • help strengthen capacities to manage the fund

2. Human Resources Development • Develop human resources capacity building plans and activities; • set up institutional training and on-the-job training; • improve local training capacity (incl. technical &thematic capacity development)

3. Needs Assessments • Identify capacity gaps and needs for technical support (national climate finance

roadmaps, assessment of readiness of national implementing entities)

Key Tasks when establishing National Climate FundsInstitutional set-up

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4. Development of Policies/Strategies/Guidelines • assist in the development of policies, strategies and guidelines; • improve legal and administrative frameworks of national relevance in line with international standards

while using participatory inputs; • support in facilitating large stakeholder consultations; • develop a resources allocation framework;

5. Creation of Funding Windows • identify and structure the funding windows; • carry out economic &technical analysis of mitigation/adaptation/forest potentials + priorities; • identify and structure funding windows; • develop investment plans for the funding windows;

6. Development of the Project Pipeline • develop project selection forms & establish project appraisal criteria; • provide technical support for proposal development (national & international)• support the development of mechanisms and facilities for project development & calls for proposals

and strategically targeted programs; • provide capacity development for fund applicants

Key Tasks when establishing National Climate FundsAllocation & Funding

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7. Quality Management • Introduce/develop quality management systems for selection and planning of climate projects; • create standard operating procedures (SOPs), handbooks and project forms

8. Knowledge Management• building project databases; facilitation of knowledge management; • establishment of processes to analyze, document and disseminate experiences and lessons learned that

have a bearing on better utilization of finance; • manage processes

9. Monitoring and Evaluation (M&E)• develop/improve a M&E system for funded actions, a monitoring system to track the implementation of

the projects and an evaluation system

10. Financial Management• financial reporting &treasury services related to trust fund activity on behalf of the secretariat; • perform accounting; allocate resources; manage the fund’s assets and receipts; manage procurements;

perform internal audits; • provide support in setting up an IT-system for financial management

Key Tasks when establishing National Climate FundsOperational quality and M&E

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Example: National Fund for Climate Change BNDES, Brazil

• The National Fund for Climate Change / “Fundo Nacional sobre Mudança do Clima” (Fundo Clima) was established in 2009, coordinated by the Ministry of Environment (MMA for its acronym in Portuguese) and the National Development Bank (BNDES for its acronym in Portuguese) as one of the tools to implement the National Policy on Climate Change (also set up in 2009).

• The fund has two financing schemes: grants and low-interest credits (refundable)

• Financial volume 2011-2014: about 1.4 billion Reais (more than 90% refundable) • BNDES also manages the Amazon Fund created in 2008.

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Text a

Text

Text Text

• Refundable resources - managed by BNDES• Grants - by the MMA

• The Management Committee, chaired by the MMA, allocates the resources

• Special participation of oil, a tax of Ministry of Environment (MMA)

• Donations from national and international public or private institutions

• Support efforts on mitigation and adaptation in accordance with the national policy on climate change

• Includes, among others: urban mobility, renewable energy, technology and education in the field of adaptation (there are 10 sub-programs in total)

Key decisions: Example “Fundo Clima” Brazil

Objectives

Capitalization

Governance

Fiduciary management

Implementation arrangements

MRV

• Annual management reports

Sources: GIZ (2014): Fundo Clima – The Brazilian National Fund for Climate Change. Fact Sheet. MMA (2013): Fundo Nacional sobre Mudança do Clima. Ralátorio 2013.

http://www.mma.gov.br/apoio-a-projetos/fundo-nacional-sobre-mudanca-do-clima

• Projects implemented by private non-profit institutions or public institutions (national, regional and local).

• 2013: distribution of 30% to 70% of the resources respectively

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• Established in 1998• Member countries: Argentina, Bolivia, Chile, Colombia, Costa Rica, Ecuador, Spain,

Honduras, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, Uruguay and Venezuela

• Sponsoring organizations: Inter-American Development Bank (IDB) and the Inter-American Institute for Cooperation on Agriculture (IICA)

• To date supported 98 initiatives with a total investment of USD 82 million: • 28.3 million (35%) contribution of the Fund (co-financing) and other strategic

partners (IDB, CGIAR-World Bank, Governments of Korea, Japan and New Zealand, among others);

• USD 53.7 million (65%): the matching contribution of the implementing agencies• Prioritized areas in 2010-2015: (1) opportunities to link producers to markets, (2)

adaptation to climate change, and (3) sustainable use of natural resources (including water resources , soils, forests, genetic resources and biodiversity)

Example: Regional Fund for Agricultural Technology (FONTAGRO)

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Text a

Text

Text Text

• Banco Interamericano de Desarrollo

• Management Board (CD) with member country representation

• Technical Secretariat (STA)

• USD 82.86 million provided by the fund and counterparts

• Interest earned on capital, financial support from other organizations

• Research and innovation in the agricultural sector; reducing poverty, increasing competitiveness and sustainable management of natural resources in Latin America and the Caribbean (LAC)

• "Climate change adaptation and mitigation" is one of three strategic lines

Key decisions: Regional Fund for Agricultural Technology (FONTAGRO)

Objectives

Capitalization

Governance

Fiduciary management

Implementing arrangements

MRV

• Annual financial statements

• Annual independent audit reports

Source: http://www.fontagro.org

• Public and private institutions

• Project accreditation by the member country

• Maximum length: 36 months (+ 12 possible)

• minimum counterpart/matching contribution (1.5 times the amount requested), in cash or in kind