Climate finance:

New sources, new instruments, more effects?

17:30-17:50 Sources and instruments for climate finance Asbjørn Torvanger, CICERO 17:50-18:05 Mobilizing capital for green infrastructure investments Kate Eklin, OECD 18:05-18:20 Results-based financing for mitigation: Choosing the right “triggers” to drive “paradigm” shift Randall Spalding-Fecher, Carbon Limits AS 18:20-18:35 Smart Unconventional Monetary (SUMO) policies: Giving impetus to green investment Romain Morel, CDC Climat 18:35-19:00 Panel discussion and Q&A: Morel, Spalding-Fecher, Eklin, Torvanger

Our Common Future under Climate Change, Paris, 7-10 July 2015 Parallel session 4404, Thursday 9 July 17:30-19:00, UPMC Jussieu, Room 107 Lead convener: Asbjørn Torvanger, CICERO

Our Common Future Under Climate Change:

Parallel session 4404:

Climate Finance: New sources, New instruments, More effects?

UPMC Jussieu, Room 107, Paris, 9 July 2015

Sources and instruments for climate finance

Asbjørn Torvanger, PhD

CICERO

Setting the stage for Climate Finance

• Huge need for CF for low-carbon and climate-resilient

infrastructure and energy, not the least in developing

countries (DCs)

• Public finance likely insufficient (100 bill. $ and beyond)

• Private finance has large potential, but a number of

barriers exist: Long-term; High risk; Low short-term

return?

My presentation: * Sources and actors of climate finance (G7 report)

* Study on incentivizing private climate finance for DCs * An innovative instrument: Green bonds

Main findings

• Global green transition requires trillions USD

• Public and private finance

• New opportunities due to cheaper renewable energy

• Business certainty and predictable regulatory and economic frameworks essential

• Governments have strong toolkit (finance, grants, concessional loans, risk coverage measures)

• Strong political will needed for USD 100 billion to DCs’ transition

Instruments available to public entities for de-risking and

cost reducing:

Mobilize private finance for climate change mitigation and

adaptation in developing/emerging countries

Classification of financial instruments according to

de-risking or reducing the cost of an investment

Category Name De-risking Cost reduction

Rev

enu

e

sup

po

rt

po

licy

Feed-in tariff

Feed-in premium

Tradable green certificates

Tendering process

Cre

dit

enh

ance

men

t

Export credit guarantee

Interest rate subsidy

Loan guarantee

Partial credit guarantee

Securitization

Dir

ect

inve

stm

ents

Concessional loan

Equity investment

Grant

Public-private partnerships

Insu

ran

ce First-loss insurance

Public political risk

insurance/guarantee

Debt-for-climate swaps

Financial instruments for de-risking and cost reduction:

Incentivize private climate finance in DCs

Category Name Leverage

factor

Scaling-up Reliability

Rev

en

ue

sup

po

rt

po

licy

Feed-in tariff High Medium

Feed-in premium High Medium

Tradable green certificates Low N/A

Tendering process High N/A

Cre

dit

enh

ance

men

t

Export credit guarantee Low/High Medium

Interest rate subsidy High Low

Loan guarantee Low/High Medium

Partial credit guarantee Low/High Medium

Securitization High Low

Dir

ect

inve

stm

ents

Concessional loan High High

Equity investment High Low

Grant High High

Public-private partnerships High Low

Insu

ran

ce

First-loss insurance High Low

Public political risk

insurance/guarantee High Low

Debt-for-climate swaps Low N/A

Green Bonds • A Bond:

A fixed-income financial instrument of indebtedness of the issuer to the holders. The issuer is obliged to pay holders interest and/or to repay the principal at a later date

• A Green Bond:

Supports sustainable development, low-carbon growth and climate change resilience

• Motivation: Economic (future markets, new investors, capital for large green infrastructure) Public image Ethical (CSR)

CICERO’s second opinions

CICERO involved in Green Bonds

since 2007

Independent reviews of the issuers’

framework for selecting projects

and investments eligible for Green

Bond funding, so-called ‘second

opinions’

Based on latest science:

Top-down and qualitative

assessments of sustainability and

climate-friendliness

CICERO has a major share

of the independent review market

CICERO’s shades of green

Dark green Medium green Light green

Aiming at low-carbon, climate change resilient future • Long-term perspective (2050) • Best available technology; for longer term • Avoid fossil lock-in • Prioritize most reliable investments and projects • Governance: sustainability strategy, capability • Macro impacts: supplier chain, life cycle Dark – Implementing long-term solution Medium – On way to long-term solution Light – Short-term benefits, but not long-term solution

Green Bonds:

Challenges and way forward

Definition of greenness * Aim at 2050 low-carbon infrastructure

* Risk management:

Climate policy and climate change impacts

* Climate change resilience

* Best available solution (over next few decades)

* Environmental factors

More compact instrument – Standardization * Branding and confidence building

* Reduce risk for window dressing and green washing

* Simplify assessment and assurance

Issues for panel

• Most promising sources of climate finance globally

• Most promising instruments to mobilize finance

• What government measures most efficient to incentivize

private climate finance?

• How assess efficiency of government measures?

(e.g. leverage ratio; output measures)

• Delimitation of climate finance vs. ODA, vs. commercial

investments (without government support)

• Potential and best application of results-based finance?

• How best overcome barriers to clean energy

investments?

• How adapt Green Bonds to developing country needs?