1. PROBLEM_ FINANCING CARIBBEAN SIDS’ ADAPTATION TO, AND MITIGATION OF CLIMATE CHANGE : F I N A N C E F O R D E V E L O P M E N T W O R L D B A N K M O O C D E C E M B E R 2 0 1 5
ALICIA NICHOLLS
2. THEMATIC RUBRIC FOR PRESENTATION • What is the problem? • Caribbean SIDS Context_ Why is financing for climate change important for SIDS? • What are the reasons government, official aid and private sector would want to participate? • Levels of Climate Finance & Shortfall • Challenges to financing • Options/Solutions for Climate Financing
3. THE PROBLEM Mobilising resources to finance Caribbean SIDS’ adaptation to and mitigation of the impact of climate change on their societies and economies, and the threat to their sustainable future
4. WHAT IS CLIMATE FINANCE? “Climate finance refers to local, national or transnational financing, which may be drawn from public, private and alternative sources of financing”. UNFCCC http_//unfccc.int/focus/climate_finance/items/7001.php#intro - Watch this OECD Youtube video for more info on climate finance_ https_//www.youtube.com/watch?v=jlfYk91lRXc
5. WHY CLIMATE CHANGE FINANCING IMPORTANT TO CARIBBEAN SIDS? • Globally, all SIDS combined contribute less than 1% to global greenhouse emissions but are the most vulnerable to the effects of climate change, compared to industrialised countries which account for more than 2/3 of global C02 emissions. • Climate change poses an existential threat to the economies, societies and sustainable future of all SIDS, including Caribbean SIDS • Their small size, geographical location, and concentration in and dependence of populations on coastal areas and marine resources, enhance their vulnerability to the effects of sea level rise, coral bleaching, ocean acidification and warming, more frequent storms and droughts. • High dependence on climate sensitive industries for GDP growth and employment e.g. tourism, agriculture and fisheries has implications for food security, employment, foreign exchange inflows, poverty alleviation and the stability and survival of rural and coastal communities, disproportionate impact on poor, especially women and children. • Climate change is central to post-2015 development agenda (SDG13). Climate change also impacts on achievement of other SDGs .e.g. poverty reduction, access to clean water, gender equality etc.. • SIDS have limited adaptative capacity due to limited human, natural and financial resources and are already feeling the adverse effects e.g: changes in rainfall patterns, droughts, stronger tropical cyclones, coral bleaching
6. IMPACT OF CLIMATE CHANGE CASE STUDY_ DOMINICA & TROPICAL STORM ERIKA 2015 • Population_ 72,340 • Area_ 750 sq km (289 sq miles) • GDP per capita_ 7,175.63 USD (2013) • GDP_ 537.8 million USD (2014) • 31 killed, 35 missing 371 homes destroyed • US$438m in losses and damages equivalent to 90% of Dominica’s GDP(WB/Govt of Dominica) • Damage to airports, homes, schools etc.. • Set back the country 20 years • Dominica will need development finance and assistance to rebuild and create climate-resilient infrastructure Source_ World Bank DataBank Credit_ Loop News Barbados
7. WHAT IS CLIMATE FINANCE NEEDED FOR? • Mitigation – for investments in projects which reduce emissions e.g: for public transport, renewable energy, green buildings, alternative vehicles, raising awareness • Adaptation – for investments to adapt to the effect of climate change e.g: seawalls, groynes, breakwaters, climate- resilient infrastructure e.g: buildings, roadways
8. CURRENT FINANCING MOBILISED – WIDE GAP • UNFCCC sets out the principle of common but differentiated responsibility and respective capabilities. • The world’s developed countries have committed to mobilize $100 billion a year by 2020, from public and private sources, to help adaptation and mitigation of developing states • The Climate Policy Initiative estimates that of the $331 billion in climate finance flowing in 2013, about $34 billion flowed from developed to developing countries, leaving a gap in the annual commitment of about $70 billion. (World Bank April 2015) • ECLAC (2015) notes that “the existing climate funds architecture presents several shortcomings; it is disorderly and complicated, with a multiplicity of funds that each has its own rationale, objectives and ways of functioning” • Green Climate Fund – 37 countries have pledged as of Aug 2015. Only $10.2 billion pledged, of which only 5.8 billion has been signed so far. • Total climate finance provided by the MDBs in 2014 in developing and emerging economies was USD 28,345 million (World Bank June 2015) • BUT of this total climate finance disbursed by Multilateral Development Banks, SIDS received only USD 592 million of that. (World Bank June 2015) • Globally, the Latin American and Caribbean region receives only between 7% and 8% of climate funds, most goes to Asia, Pacific and Western Europe (ECLAC 2015). Even within LAC, access to climate financing is uneven and goes mainly to larger economies. Brazil and Colombia receive the bulk of approved resources (45.83% and 25.14% of the total (ECLAC 2015)
9. MOBILIZED CLIMATE FINANCE IN 2013 AND 2014, BY FUNDING SOURCE (USD BILLIONS). Source_ OECD & Climate Policy Initiative Report_ Climate Finance in 2013-2014 and the USD 100 billion goal Accessible here_ http_//www.oecd.org/env/cc/Climate-Finance-in-2013-14-and-the-USD-billion-goal.pdf
10. FUNDING CARIBBEAN SIDS RELY ON • Currently reliant mainly on development assistance, loans and capacity building from MDBs (mainly IDB, CDB and WB) for climate change adaptation, e.g: CCORAL project in Haiti (CDB), Coastal Infrastructure Programme in Barbados (IDB). • Caribbean Community Climate Change Centre (CCCCC) serves as executing agency for many climate change projects financed by MDBs e.g: ACCC, MACC projects • Bilateral aid and assistance by national development agencies e.g: UK’s DFID e.g: Caribbean Regional Resilience Development Implementation Plan (IP) (2011-2016) • SIDS vary in their capacity to access multilateral financing for climate change. Tapping into multilateral climate funds are generally difficult for small SIDS as the paperwork and process take up administrative and human resources/costs and technical capacity which many SIDS lack. This point was made by ECLAC in 2015
11. CARIBBEAN SIDS’ FINANCING NEEDS & CHALLENGES TO RESOURCE MOBILISATION • The impacts of climate change for Latin America and the Caribbean (LAC) will cost around US$100 billion by 2050 (Joint Report by IDB, the UN Economic Commission for Latin America and the Caribbean (ECLAC) and the World Wildlife Fund (WWF: 2012) • Affected by global economic & financial crisis, sluggish GDP growth in aftermath • Access to concessional financing difficult for those countries with high GDPs per capita (e.g: Barbados, Trinidad & Tobago and the Bahamas) which have been graduated from World Bank concessional loans, and for whom traditional loans at regular market interest rates will further exacerbate their indebtedness • Small populations and large informal economies means limited tax bases. Sense by some populations that they are overtaxed or do not know where their tax dollars are going = impacts tax morale • Limited human, technical and administrative resources for tapping into multilateral funds • High levels of indebtedness – makes it expensive to borrow on international markets • Risk adverse corporate cultures in many cases • Ease of doing business is a constant issue for businesses due to redtape, length of time for approvals.
12. FINANCING CHALLENGES CASE STUDY_ BARBADOS • Size_ 431 sq km • GDP (2014): 4.348 bn (USD) , GDP per capita (2014): 15,343 USD • High level of human development (59 on HDI in 2014) • Sluggish GDP growth_ 0.2% in 2014 • High debt/GDP ratio - Net public sector debt/gdp = 71% in 2014, interest payments are 26.4% of GDP. Most debt is domestic. • Persistent high fiscal deficit and wide current account deficit • Lack of access to concessional financing due to high income classification. Relies on MDB loans, mainly from IDB and CDB • Small tax base (Population: 283,400) but revenue is 28.8% of GDP • Large informal economy which is at least a 1/3 of official economy (Greenidge & Holder 2009) • Generally risk adverse corporate culture • Speculative grade sovereign debt rating due to successive downgrades in 2013 and 2014 = difficult to raise capital on international capital markets Credit_ www.barbados.org Data Sources_ World Bank DataBank, Central Bank of Barbados
13. WHY WOULD PRIVATE SECTOR, GOVERNMENT & OFFICIAL AID PARTICIPATE IN MOBILISING CLIMATE FINANCE? • Governments are concerned because of the threat of climate change to their economies and societies • Opportunity for private sector to engage in PPPs, market for clean technologies, goods & services • Official aid – Climate change is a global problem.
14. SOME CLIMATE FINANCE RESOURCE STREAMS Climate finance resource streams Official Development Aid Dedicated Bilateral Funds MDB loans and grants Carbon Markets Multilateral Funds e.g: GCF, GIF
15. DOMESTIC RESOURCE MOBILISATION • Improve Business Facilitation/reduce redtape to facilitate private sector investment • Tax Reform for Efficient Tax Administration • Issuing Savings bonds/other debt instruments • Blended finance, state guarantees, PPPs, insurance and other mechanisms • Voluntary solidarity contributions e.g: hotels, etc, proceeds could go to a green tourism fund
16. DIASPORA RESOURCE MOBILISATION • Engage the large diasporas which already contribute to the region through remittances and investment etc…to invest in green projects • Create National Diaspora Policy/National Diaspora Unit e.g: Guyana • Encourage PPPs and joint ventures with local and diaspora based businesses on green projects, provision of green products and services • Diaspora Investment facilitation & strategic promotion e.g: online portal of business & investment opportunities which have an adaptative element. Use diplomatic missions to raise awareness of opportunities • Encourage philanthropic grants by diaspora e.g: for greening projects like parks etc…
17. REGIONAL & INTERNATIONAL FINANCING OPTIONS • Establish national fund to streamline climate finance receipts e.g: Brazil • Use the Caribbean Investment Fund to mobilise funding for adaptation projects • Use development Banks (CDB, IDB, WB & CAF) – technical/capacity building assistance and lending options • Investment facilitation & strategic promotion to attract FDI • International capital markets e.g: green bonds • Multilateral and philanthropic grants • Use ODA to develop administrative and technical capacity to tap into multilateral funds and crowd in private sector finance
18. SOME POSSIBLE SOLUTIONS TO RESOURCE MOBILISATION CHALLENGES IDENTIFIED EARLIER Resource Challenges Proposed Solution Tax revenue (1) Low tax morale and large informal economy (2) Mistrust of how tax dollars are being spent (1) Reform tax system to improve efficiency in tax collection (2) Improve transparency and accountability in governance to enhance citizens’ confidence Private Sector (1) Limited Ease of Doing Business (2) Risk averse culture (3) Limited capital domestically (1) Business facilitation. Institute time limits for approval, simplify admin procedures, single windows/electronic portal to notify of regulations, procedures etc.. (2) PPPs, state guarantees, blended finance (3)Encourage the diaspora to invest! Multilateral Funds (1) Accessibility issues due to administrative/human resource capacity constraints (1) Use ODA/ technical assistance to train staff and equip them with the technical skills needed
19. FINANCING OPTIONS CASE STUDY_ CARIBBEAN INVESTMENT FACILITY • Established in 2012 and is one of the EU’s regional blending facilities • Aims to “mobilise funding for development projects by combining grants from the European Development Fund (EDF) with loans from other sources, including European and Regional Financial Institutions”. • CIF contributions support investments in 15 Caribbean countries • “As of May 2015, 9 projects have been approved, representing a total investment cost of about EUR 535 million with a total CIF grant contribution of almost EUR 70 million, entailing a leverage of almost EUR 8 for every Euro of support provided.” • Projects include “targeted energy (5 projects), water and sanitation (2 projects) and transport (1 project)” Source and for more information_ https_//ec.europa.eu/europeaid/sites/devco/files/factsheet-cif_en.pdf
20. CONTINUED ADVOCACY IS A MUST! • Caribbean SIDS as part of AOSIS have been advocating ardently for the need for binding commitments on climate change finance at COP21 in Paris • Caribbean Countries like Barbados have been advocating against the use of GDP per capita as the sole measure of development used by MDBs to graduate countries from access to development aid and concessional loans
21. CONCLUSIONS • Climate change poses an existential threat SIDS’ sustainable future • Current levels of finance are not enough to finance their climate change mitigation and adaptation needs. Good news is more countries have pledged funds to the GCF during COP21 e.g: Vietnam • SIDS face many challenges in resource mobilisation but several options exist through domestic & diaspora resource mobilisation and regional and international financing options e.g: GIF, Caribbean Investment Facility, PPPs, MDBs, capital markets • Not all financing options will be available or suitable so have to be part of a national climate change framework and tailored to suit the unique circumstances and needs of each country • Some of the mobilisation challenges are already being addressed e.g: Barbados tax reform • Continued advocacy needed for access to climate finance for SIDS. • Hopefully, COP21 will deliver a robust agreement with binding commitments re climate financing • SIDS survival depends on it!
22. REFERENCES Central Bank of Barbados (September 2015). Economic Review of the Barbados Economy for the First 9 Months of 2015. ECLAC (2015). Financing for development in Latin America and the Caribbean_ a strategic analysis. Government of Dominica & World Bank (August 2015). Rapid Damage and Needs Assessment Final Report. Green Climate Fund. (October 2015). Status of Pledges and Contributions made to the GCF. IDB et. al (2012). The Climate and Development Challenge for Latin America and the Caribbean. World Bank (June 2015). Joint Report on Multilateral Development Banks’ Climate Finance. World Bank (April 2015). Closing the $70 billion Climate Finance Gap. http_//www.worldbank.org/en/news/feature/2015/04/09/closing-the-climate-finance-gap K. Greenidge & C. Holder (2009) - Estimating the Size of the Informal Economy in Barbados. OECD & Climate Policy Initiative Report (2015). Climate Finance in 2013-2014 and the USD 100 billion goal.
