Insights on NDC Implementation from the Energy Sector Barriers, Challenges, Drivers Part of the IKI NDC Support Cluster’s thematic workshop series 2018

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1 Background and objectives of the workshop Funded by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) and supported by the NDC Support Cluster’s thematic working group on Sector Approaches (more information at www.ndc-cluster.net ), this workshop, held in Berlin on 25 and 26 April 2018, convened renowned experts from climate and development implementing organisations, country governments, think tanks and academia to address the following set of questions: How can NDCs drive transformation in the energy sector? What may hinder this transformation? How can these barriers be overcome?

2 Workshop themes Participants identified common challenges and experiences in implementing NDCs in the energy sector and developed a series of NDC implementation Approaches to overcome the barriers identified. The workshop focused on three main topics – actors, the enabling environment and entry points for mainstreaming the NDC – which represent the key political-economy drivers for NDC implementation. Given that NDCs are embedded in a complex institutional, political and economic environment, it is crucial to examine the distribution of power and resources as well as the interests, incentives and norms that drive or hinder NDC implementation.

Key areas discussed at the workshop:

a. Actors supporting NDC implementation

Entry point for actors’ involvement

Horizontal coordination of sectoral actors

Local actors’ role in sectoral transformation

b. Enabling environment for NDC implementation

Supporting policy alignment

Driving forward policy formulation

Building communications strategies to address conflicting narratives

c. Entry points for mainstreaming the NDC

Highlighting the risks and opportunities arising from the introduction of low-carbon pathways

Unlocking business opportunities

Translating abstract policy into local-level narratives

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3 Discussion outcomes The key findings of these discussions are summarised below, concentrating on key challenges (in italics) and solutions for effective and successful NDC implementation. Many themes were repeated in the different discussions due to their link to broader transparency issues relating to all three subtopics.

a. Mobilise and align relevant actors supporting NDC implementation

Diverse actors are involved in the NDC implementation process such as ministries, government agencies, sub-national actors and civil society. The workshop participants identified challenges related to the level of involvement and capacities of and the coordination mechanisms for energy-sector-related actors.

Entry points for actors’ involvement

Communicate the co-benefits of NDC implementation: The different actors crucial to the NDC implementation process are guided by their own interests: while industry actors are primarily guided by economic incentives, policy actors are sometimes less likely to get more deeply involved in the NDC implementation process because they are not fully aware of the benefits and thus are not incentivised to do so. Also, the general public often lacks information on the NDC process and its implications. Building evidence on co-benefits, linking co-benefits with the diverse interests of key actors (job creation, air quality, etc.) and then promoting these messages in targeted communications strategies can help to promote acceptance among these actors and mobilise them for NDC implementation.

Raise awareness and address consumer preferences: In general, public awareness of the need for climate action remains low, except in cases where extreme weather events have made climate-related risks evident. In the absence of such natural shocks, well-organised political processes can help to draw attention to climate-related problems and catalyse the involvement of various actors in climate action. Moreover, as consumer preferences have the potential to promote real change in NDC implementation, it is necessary to raise people’s awareness of, for instance, the health impacts related to pollution. Other important factors to include in awareness-raising activities are benefits such as the lower electricity costs and new jobs that can result from NDC implementation.

Horizontal coordination of sectoral actors

Coordinate climate action effectively: The NDC process requires coordinated action by multiple departments and ministries. However, policy coordination among various sectors is often limited because inter-ministerial coordination mechanisms are either very weak or non-existent. Effective instruments and approaches for addressing such coordination issues include cross-sectoral taskforces or engaging the planning ministry in the coordination and harmonisation of existing policies. Meanwhile, some countries (e.g. Mexico) have found handing leadership of the NDC implementation process to the finance ministry to be an effective solution.

Overcome the short-term orientation of policy actors: Acting on the basis of legislative periods, policy-makers tend to focus more on the short-term perspective, rather than develop the long-term vision required for strategic NDC implementation. One way to overcome short-termism in climate action is to institutionalise climate change as a key competence area (e.g. through adoption of a climate change law that stipulates the particular commitments to be made by each sector, specific budget allocations , dedicated line ministry resources dedicated to climate change action).

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The role of local actors for sectoral transformation

Strengthen the mandate of provincial leaders: While it is already challenging to align policies and goals at the national level, designing an appropriate participatory process that includes the sub-national level in goal setting and policy formulation is often additionally challenging. In many cases, there are no specific sub-sectoral goals for reducing emissions, which complicates the mainstreaming of policies at the local level. Supporting sub-national leaders can help to reinforce the implementation process at the local level. Furthermore, bottom-up approaches can be employed to determine the specific contributions that are required and deliverable at the local level.

Improve data flows for vertical integration: Two approaches likely to strengthen vertical integration mechanisms and advance the NDC implementation process are action to improve data flows and knowledge sharing between the local and national levels, and the creation of strong incentives that encourage local authorities to commit. To collect the required data, local authorities should have the necessary mandate and be equipped with the capacities and resources they need.

b. Promoting an enabling environment for NDC implementation

The second focus area covered the enabling environment for NDC implementation, with discussions exploring the challenges and solutions related to the policy mix and institutional arrangements for NDC implementation in the energy sector.

Support policy alignment

Identify conflicting policy goals that are hindering NDC implementation: The lack of an overall NDC implementation strategy and weak or absent cross-sectoral integration of climate and energy policies can give rise to a situation where political instruments adopted in different sectors have conflicting goals and undermine each other. In addition, if the NDC is not well communicated, the alignment of climate goals with other sectoral and sub-national-level goals can prove difficult. It is therefore crucial to involve all relevant stakeholders in the process and to include opposing political camps. One way to do this is to set up a national commission that jointly maps out national and sub-national policies for alignment with the overall climate goals.

Structure an appropriate alignment process: The NDC’s lack of alignment with national goals and policies needs to be addressed at different levels. An important starting point is the alignment of national and sectoral goals and strategies with the overall climate goals defined in the NDC. In a second step, key policy ‘cornerstones’ need to be identified, reviewed and aligned with the overall goals. The final step is to concretise these policies by translating them into administrative regulations.

Promoting the formulation of adequate policies

Identify co-benefits to overcome policy lock-in effects: When seeking to move the energy system towards decarbonisation, it often proves difficult to overcome existing policy lock-ins. These lock-ins may, for example, be due to long-term binding contracts with fossil-fuel-based energy suppliers or to commitments on heavy fossil fuel subsidies. Potentially negative social or economic impacts caused by energy sector transformation (e.g. unemployment, stranded assets) may also prompt resistance from key political actors. To overcome these lock-in effects, it is important to demonstrate the net effects and co-benefits of the different policy options. The potential winners and losers of the energy sector transformation process, including parties outside the energy sector, should be identified to create an informed decision-making process.

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Ensure broad participation in the process: To speed up energy sector transformation, policies need to garner wide support and foster ownership. A participatory policy-development process can be particularly helpful in this regard and should involve awareness-raising activities at the sub-national level. Technical working groups that include representatives of local organisations can work on tackling specific issues. Launching a dialogue with civil society and veto players, leading an open debate about the risks of new policies, and translating abstract policy content into narratives relevant for local actors are key approaches for gaining policy support and stimulating action at the grassroots level.

Address energy security

Consider the driving forces behind most energy narratives: Energy security is often the main argument put forward for maintaining dependence on fossil fuels and in many contexts, fossil fuel subsidies are required to ensure energy security and energy price stability. Influential private sector actors involved in the fossil fuel sectors (e.g. the mining sector) are often successful in lobbying for their business interests and, with the cost of installing renewables remaining high, expressing support for fossil fuels unfortunately often continues to be a vote winner in political elections. When precedence is given to the energy security agenda in this way, it can result in the setting of political targets that conflict with ambitious climate objectives and successful NDC implementation.

Establish an appropriate incentive structure: To overcome the challenges outlined above, appropriate economic incentives for the promotion of renewable energy and the implementation of fiscal reforms need to be created. For instance, an energy-efficiency fund could be established to financially support energy-efficiency measures. Moreover, the transformation of the energy sector requires enabling policies and systems that will speed up the process, such as technologies that back up renewable energy installations (storage/grid systems). It may therefore be crucial to invest in energy storage solutions to ensure energy security.

Build a communications strategy to support energy sector transformation

Develop convincing communications approaches: An effective communications strategy is a powerful way to support the NDC implementation process in the energy sector. However, people’s visions regarding the future of the energy sector often differ within countries, and these differences can be difficult to align and encapsulate in a single communications strategy. Moreover, the national perspective tends to dominate communications, with sub-national points of view often being neglected. A successful communications strategy will demonstrate how political instruments can help to achieve sectoral and national economic goals and will outline what forms of compensation are envisaged for those stakeholders who feel disadvantaged. Developing specific scenarios to demonstrate different pathways can help in this regard.

Make the links with other issues and areas explicit: Placing a greater emphasis on long-term benefits and choosing the right strategic communications priorities is crucial. For instance, in many countries energy security and access to energy (SDG 7) are high-priority issues, in which case it may be useful to focus more effort on framing the climate action debate within the energy narrative – especially when it seems to be dominating the national discourse. Another key message is climate change adaptation’s crucial role in ensuring energy security by, for example, enhancing the climate resilience of energy infrastructure.

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c. Identify and develop entry points for mainstreaming the NDC

The third topic focused on the barriers encountered and experiences gained when dealing with the right entry points for mainstreaming the NDC in the energy sector towards the introduction of low-carbon pathways, and for mobilising finance for NDC implementation.

Highlight the risks and opportunities associated with the introduction of low-carbon pathways

Assess transformation readiness: A transformation readiness assessment can help to mainstream transformation processes and inform investment decisions. A clear picture of the overall sector environment – including of the potential winners and losers in transition processes and of the relationship between public and private sector activities – can prepare the ground for handing over responsibilities (e.g. from the public to the private sector) during the transformation process.

De-risk investments: A significant problem hindering the mainstreaming of NDCs in the energy sector is the challenge of attracting sufficient private sector investment. The lack of security of investments in climate projects and opportunities for de-risking are often coupled with the, uncertainty whether revenue will be earned in the short term. The value of renewable energy markets has yet to be fully recognised, and it is often simply the case that governments lack the resources required for risk sharing. Evidence shows that establishing risk-sharing facilities can be a useful way to attract private sector investors. Increasing the climate change resilience of energy infrastructure may also contribute to reducing investment risk.

Unlocking business opportunities

Enable private sector access to climate finance: It is investors rather than NDC planning institutions that, in practice, drive the transformation of the energy sector. However, one of the greatest challenges hindering private sector engagement is the lack of access to climate finance. Another obstacle is the lack of private sector awareness about the existence of funding opportunities or about climate policy and the country’s NDC implementation process in general.

Establish processes for private sector inclusion: Important components that ensure stronger private sector involvement are the initiation of dialogues within different interest groups, the sending of strong public policy signals through procurement approaches, the inclusion of local financial sectors (banks) in any activities, and a special focus on efforts to harmonise the monitoring of key sector trends at the local level.

Translating abstract policy into local-level narratives

Ensure knowledge sharing between the national and sub-national levels: When the dissemination of knowledge is only top-down, the different levels are often left with an incomplete picture, with the local level not always aware of the high-level goals, and the high-level policy-makers not always sufficiently informed about local capabilities and needs. Across policy levels there is in many cases limited awareness of what the 2°C goal of the Paris Agreement means in practice. As a result, many countries find it hard to translate the NDC formulated at the national level into concrete action on the ground. Knowledge sharing between the different levels of government is therefore crucial to address knowledge and resource disparities between the national and sub-national levels.

Address the unequal distribution of costs and benefits at the local level: Another disparity between the national and local levels results from the way in which the costs and benefits of climate action are distributed. For example, in a coal-mining community the benefits of NDC implementation might not outweigh its costs, whereas in communities more suited to the

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development of renewable energy the opposite is likely to be true. Another challenge is that, in some cases, local benefits cannot not be fully realised due to conflicting higher-level regulations.

4 Workshop organisers and participants The workshop was jointly organised by the GIZ International Climate Initiative (IKI) Support Project for the Implementation of the Paris Agreement (SPA), which coordinates the NDC Support Cluster, and by NewClimate Institute and Energy Research Centre of the Netherlands (ECN), which lead the Thematic Working Group on Sector Approaches. Other NDC Support Cluster members who took part included Climate Analytics, the German Institute for Economic Research (DIW Berlin), LEDS GP and UNDP. Also participating were representatives from the Ministry of Energy of Chile; the Energy Policy and Planning Office of Thailand; the Energy Policy and Planning Office of Mexico; Uruguay’s Ministry of Industry, Energy and Mining; Indonesia’s Ministry of National Development Planning/National Development Planning Agency (Bappenas); the Ministry of Industry and Trade of Vietnam; the Ministry of Energy of Kenya and from the following climate and development implementing organisations, think tanks and academia: International Institute for Sustainable Development, UNEP DTU Partnership, Institute for Advanced Sustainability Studies Potsdam Germany e.V. (IASS), SD Strategies and the Overseas Development Institute. adelphi developed the overall workshop methodology, supported the preparations and took charge of moderating and facilitating the individual sessions.

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5 Annex: NDC implementation approaches NDC implementation approaches developed at the workshop

Regional / Thematic “Communities of Practice” – Bringing together individuals working on common themes from across a region, providing a platform for peer-to-peer learning and knowledge exchange on NDC related issues

Bridge the NDC to the grassroots level to create ownership and engagement – Linking “top down” policy consultation to concrete project implementation

Common international elements for sectoral transformation narratives (“Common Elements” Approach) – Informing activities of sector stakeholders in a coherent and <2° consistent manner

Reinvestment of fossil fuel subsidies for NDC implementation (subsidy “swap”) – Shifting fossil fuels subsidies for households and target sectors to be reinvested into RE/EE and social programs.

Creating dynamic habitat for new RE business – bottom-up approach; creating regulative incentives and providing entrepreneurial support

NDC implementation approaches developed by country representatives, NDC Support Cluster implementing partners and academia, discussed and further refined at the workshop

Chile’s National Energy Policy 2050

Uruguay: Introduction of non-traditional RE in power generation

Indonesia: Forum to ensure alignment of NDC Action Plan with Annual Government Work Plan

Vietnam: NDC on energy of Vietnam - Bottom-up BAU definition to improve MRV quality

IASS COBENEFITS project: develop a national perspective on co-benefits of NDC implementation through an analysis and dialogue with national key stakeholders at eye level

UNDP NDC implementation support tailored for countries’ needs: revision/design of NDC implementation and finance plan; NDC dialogues, NDC support programme, CPEIR etc.

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Imprint

Disclaimer: This document has been prepared in the framework of the NDC Support Cluster of the International Climate Initiative (IKI) funded by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU). It represents the authors’ personal opinions and does not necessarily reflect the positions of all implementing partners of the NDC Cluster.

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH is responsible for the content of this publication.

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

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09 / 2018