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Climate Finance Essentials

Module 01

Climate Finance Essentials
Lesson 2

The Landscape of Climate Finance
Presentation Script

Climate Finance Essentials
Lesson 2 – The Landscape of Climate Finance

Presentation Script

1. Home

Welcome to Lesson 2 of the eCourse on Climate Finance. Click Next to begin.

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Climate Finance Essentials
Lesson 2 – The Landscape of Climate Finance

Presentation Script

2. Introduction

In the previous lesson, you learned about the critical role that climate finance
plays in transitioning countries to a low-carbon and climate-resilient growth
trajectory. In this lesson, you will learn in more detail about the current climate
finance lifecycle so that you are more familiar with the multiple sources - both
public and private. You will also learn how climate finance flows and what are
some recent trends and which instruments are being used to mobilize climate
finance.

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Climate Finance Essentials
Lesson 2 – The Landscape of Climate Finance

Presentation Script

3. Key questions addressed in this lesson

Some of the key questions that will be addressed throughout this lesson include:
How much climate finance is being mobilized and delivered? In what forms and
by whom? To which activities? And how do countries mobilize more finance
flows?

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risk management instruments. low-cost debt and capital instruments. Page 4 of 48 . there are public sector sources. project-level equity and balance sheet financing. What are some of the sources that you can think of which provide climate finance? Well. grants. and public or private intermediaries that source climate finance. private sector sources. What are some of the instruments which are used in climate finance? Some examples include policy incentives. This terminology makes up a large part of the “climate finance spaghetti” that you will learn more about now.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 4. including project-level market rate debt. Getting familiar with climate finance Let's first get familiar with climate finance terminology.

The diagram you see here is the well-known “climate finance spaghetti chart” that CPI has developed to illustrate the landscape of climate finance flows along their life cycle for the latest year available. These inventories have gained international recognition as the most comprehensive overviews of global climate finance. capital investment and incremental costs are noted by the dotted-line grey boxes. Finally. Throughout this lesson. Page 5 of 48 . Public money is noted in bright blue. The width of the arrows represents the relative size of the flows. 2012. private money in red. to and between countries each year.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 5. The landscape of climate finance This lessons draws from the analysis completed in 2013 by partner organization Climate Policy Initiative (CPI) which produces an annual inventory of the climate finance that is flowing in. we will be examining in detail how climate finance flows by utilizing this diagram as a guide. Public financial intermediaries are noted in purple. and private financial intermediaries are in dark grey.

click on the spaghetti diagram. Page 6 of 48 . 6.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script To see the full CPI Landscape report from 2013. Climate finance flows Let us start by addressing a few key questions. · What sources are providing the largest climate finance flows? · To where is the majority of climate finance being channeled? · What is the origin of most green investments? · And what is the latest estimated volume of global climate finance? Click on each of the highlighted arrows to learn more.

In the diagram displayed. Sources and intermediaries Now let’s look at the main climate financial sources and intermediaries. We will continue to learn more about this climate finance contribution. and private sources and intermediaries on the right. Page 7 of 48 .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 7. you can see climate finance contributions from public sources and intermediaries on the left.

Ministries and Government Agencies are the most important. Half of this North-to-South flow was channeled through national governmental bodies via bilateral cooperation agencies and 7 percent was channeled through UN institutions. Total public sources represent 3% of total climate finance flows captured in the CPI Landscape report. Bilateral cooperation agencies and UN institutions work closely with recipient governments to develop and implement national strategies and policy frameworks conducive to investment.1 Public sources Public sector climate finance originates from either public sources or public intermediaries. Page 8 of 48 .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 7. contributing between 9 and 16 billion US dollars in 2012 to financing low-carbon and climate-resilient activities. The largest part of this government finance flowed from developed to developing.

bilateral financial institutions . Page 9 of 48 . Public sector intermediaries have an array of financial instruments and specialized knowledge.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 7.2. Click on each public intermediary in blue for further definitions. making them the cornerstone of efforts to manage and distribute global resources for low-carbon and climate-resilient growth. Public intermediaries The other component of public sector sources of climate finance comes from public intermediaries. including climate funds and also national development banks. multilateral development banks.which taken together are called Development Financial Institutions.

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DFIs.3. Renewable energy and energy efficiency interventions attracted 65% of these flows. DFIs also provided critical support to adaptation measures. 28% of which were in support of sustainable transport projects.of total climate finance flows. contributing about USD 18 billion and by also managing and implementing some of the relevant adaptation funds. mainly National Development Banks. DFIs committed around one third . Multilateral Development Banks alone contributed 31% .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 7. such as Page 11 of 48 . or about 69% (USD 84 billion) of intermediated climate finance. more than half in the form of low-cost loans. Public intermediaries In 2012.or USD 121 billion . National Development Banks and Bilateral Finance Institutions distributed the majority of climate finance from public intermediaries. also play a role in distributing third party resources valued at USD 2 billion from multi-donor climate funds.USD 38 billion of the total finance from public intermediaries.

interest rate subsidies. 8. Blending grants and loans at concessional terms from these climate funds with DFIs' commercial financing has become a common practice in international climate finance. Given their unique position. National Development Banks can help to promote market development in new sectors and emerging industries. National Development Banks National Development Banks are able to leverage private capital to finance investment projects. We just examined how National Development Banks and climate funds are emerging as significant public intermediary players in climate finance. or direct investment grants to buy down the costs of projects that would not otherwise happen.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script the Climate Investment Funds and the Global Environmental Facility. We will learn more in the following slides. National Development Banks have long-standing relationships with Page 12 of 48 . DFIs' use of these resources can take the form of technical assistance.

and hence understand the risks and barriers that they confront when financing underserved sectors. for example as they enable DFIs to buy down the costs of projects by blending grants and loans at concessional terms from these funds (or other donors) with DFIs' commercial financing. Recently. Lastly.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script local private financial institutions. National Development Banks can aggregate large numbers of small-scale projects by adopting a portfolio approach when assessing credit risk. bilateral or multilateral organizations providing trustee Page 13 of 48 . which allows for streamlining the application process. minimizing transaction costs and encouraging local financial institutions to participate. a number of national. Climate Funds Climate funds are relatively new players on the global landscape and play an important role via concessional resources. bilateral and multilateral organizations have set up climate-specific funds. 9. They are usually managed “off balance sheet” with one or more national.

Channels and mechanisms This chart further categorizes the public intermediary channels of climate finance we just reviewed by their key features. adaptation. Climate funds can be grouped into the categories displayed. such as climate change mitigation. 10. REDD. Each fund tends to have a finite lifetime. Page 14 of 48 . Click on each image to learn more.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script and administrative services. and a specific sectoral focus. and well as the methods by which they capitalize their funds and which instruments are mainly used in funding climate finance flows. among others.

Page 15 of 48 .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 11. Private Sources and intermediaries Now that we have learned about the public sources and intermediaries of climate finance. let us turn to examine the private sources and intermediaries of climate finance.

We will now introduce each in more detail. corporate actors and private households. private contributions to climate finance can also be organized by main sources and intermediaries. Private sources In 2012. Page 16 of 48 . the private sector invested $224 billion USD in climate financing. The majority of private climate finance. and they range from single households to multinational corporations. much of which was enabled by public investments. however.1. which represents 63% of total climate finance flows or the lion's share of climate finance. Just like the public sector.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 11. flows from a few principal sources: project developers.

Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 11. approximately USD 102 billion or 28% of total global climate finance flows. This is important to remember: the challenge remains to shift project developers' existing financial resources towards low-carbon and climateresilient investments. project developers contributed the largest single share of climate finance. Private sources Private sources (not including intermediaries) provided around 56% of the private sector climate finance. they also represent actors still investing in high-emitting technologies. like new fossil fuel generation. Click for a definition of Project Developers. While private project developers are big players in climate finance. Page 17 of 48 . In 2012.2.

private households contributed a significant share of global climate finance. contributed USD 66 billion or 19% of overall climate finance flows. As corporate actors will not invest in low-carbon alternatives as long as they have strong incentives to make business-as-usual decisions. including manufacturers and corporate end-users. or approximately USD 33 billion or 9% of climate finance. In 2012.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 11. Private sources Private corporate actors. investing in distributed energy and heat for their own use. have been tested in many countries to help corporate actors to reduce their environmental impact without sacrificing their productivity.3. Page 18 of 48 . Click for a definition of Private households. and more importantly. such as cleaner production and industrial energy efficiency. continued prioritization of fossil fuels represents both an opportunity cost. Different models. an opportunity lost.

the following are examples of innovative climate finance mechanisms that support private household investments in renewables. thanks to the emergence of new renewable energy investment vehicles and business models.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 12. property assessed clean energy and Pay As You Save programs. like microfinance for energy. Take a moment to read these descriptions. like publicly-traded investment funds and the cutting-edge crowdfunding for pooling private resources for green investments. Households can also act as retail investors of renewable energy. Mechanisms supporting households investments in renewables To further illustrate the CPI landscape findings on household investments. and click on the icons on the right to learn more. Page 19 of 48 .

venture capital. Private intermediaries The remaining private resources for climate finance are comprised of contributions from private intermediaries. and played an important role by providing financial structures to address specific investor needs.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 13. Page 20 of 48 . private equity and infrastructure funds together intermediated about 6% of global climate finance in 2012. Commercial financial institutions.

Page 21 of 48 . As part of in-depth interviews with institutional investors. these six types of barriers surfaced which prevent these institutional investors to scale up green investment. and click on the report icon on the left to read the full report. Please take a moment to consider them. Barriers for institutional investors A recent report by the International Finance Corporation of the World Bank Group looks further at barriers to institutional investors' climate finance activity.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 14.

Private and public investors channel investments to low-carbon and climate-resilient projects via a range of policy and financial instruments. Instruments Now that you are familiar with the various actors from public and private sources and their intermediaries. let us take a closer look at the various instruments these actors use in climate finance. Page 22 of 48 .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 15.

including project-level market rate debt. project-level equity and balance sheet financing. Click on the light bulb to read more.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 16. Instruments There are five major categories of instruments utilized in climate finance: policy incentives. Let us take a closer look at each instrument's definition and examples. investments in climate resilience tend to be supported with grants and low-cost loans due to the generally higher incremental cost component. grants. risk management. Page 23 of 48 . low-cost debt and capital instruments. In general. On the other hand. mitigation projects tend to be financed with a mix of equity and loan instruments (both concessional and non-concessional) supported by various types of policy incentives.

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the choice of instruments used reflects the goals. concessional loans and equity for capacity building. strategies and risk appetite of different institutions. Instruments by actors How do climate finance actors select which instruments to use? For public actors.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 17. around 96% of their overall climate finance funding. and promoting early stage technologies. Page 30 of 48 . For example. DFIs provide mainly loans. Policy incentives and risk management instruments are provided by public actors to incentivize private investments. while governments and climate funds use a mix of grants. reducing financing costs.

Generation Page 31 of 48 . encourage the use of renewable energy sources. utilities and others offer a variety of tax incentives such as tax credits or rebates to support energy efficiency. Examples of Instruments Here are examples of the five important climate finance instruments and accompanying case studies featured to learn more. Government agencies. Renewable Energy Certificates (RECs) are tradable. and support efforts to conserve energy and lessen pollution. non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource (renewable electricity). typically based on the cost of generation of each technology. Examples of policy incentives include: Feed-in tariffs are policy mechanisms designed to accelerate investment in renewable energy technologies by offering long-term contracts to renewable energy producers.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 17.1.

hydropower and biomass. wind.] Page 32 of 48 .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script technologies that qualify as producers of RECs include solar photovoltaic or thermal. geothermal.

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Page 38 of 48 . National and international public actors can utilize these options to help increase climate finance. Role of instruments in mobilizing funds Instruments not only help to channel investments to low-carbon and climateresilient projects. the magnitude of critical mass needed to achieve transformational shifts toward climate-friendly investment decisions. but serve an important function for public climate finance actors in mobilizing climate finance and achieving climate investments at scale. align public and private interests and enable scaled-up low-carbon and climate-resilient investments. There are various examples of instruments that can address investor-specific needs.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 18.

Where does climate finance flow? So who gets all this climate finance? We've covered how much climate finance is flowing. to where. Page 39 of 48 .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 19. and who's behind it in the public and private sectors. Let's explore to whom. and to which activities climate finance is flowing.

thermal and households' investments). Let us take a closer look at both mitigation and adaptation activities receiving climate finance. Where does climate finance flow? This diagram clearly shows that the majority of climate finance in 2012 went to mitigation uses: USD 337 billion out of the total USD 359 billion was invested in mitigation. USD 22 billion went toward adaptation interventions. USD 85 billion was distributed to wind energy. the largest investments were in renewable energy generation alone attracted 74% of the total climate finance flows with USD 137 billion going toward solar (including PV. both onshore and offshore. on average. Page 40 of 48 . With mitigation receiving 94% of climate finance.1.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 19. In comparison.

Note that the CPI Landscape report does not capture energy efficiency finance from private actors. Where does climate finance flow? Energy efficiency attracted USD 32 billion or 9% of the total amount of climate finance. Other mitigation measures receiving climate finance in the amount of USD 40 billion total included sustainable transport. and agriculture. land-use and livestock management. Page 41 of 48 .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 19. forestry.2.

Page 42 of 48 . As you can see. the significant investment in mitigation was sourced from private actors: project developers. Finance sources to mitigation and adaptation This chart presents a breakdown of finance to mitigation and adaptation uses based on which source funded the activities. corporate actors. Let us take a closer look at the breakdown of DFIs' contributions to mitigation. Development Finance Institutions contributed over 90% of the overall public sector finance sourced to mitigation.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 20. and households. From the public sector.

1. and also around 94% of total public investments in energy efficiency and other measures. Finance sources to mitigation and adaptation Development Finance Institutions in 2012 allocated USD 36 billion to renewable energy. The investments in energy efficiency and other mitigation activities are significant because they represent 66% of DFIs' overall mitigation support. Page 43 of 48 .Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 20. USD 31 billion to energy efficiency and USD 37 billion to other mitigation investments.

there are large knowledge gaps about adaptation finance. Out of that 22 billion dollars. Page 44 of 48 .was invested in activities with adaptation objectives. Agreement on the sectoral boundaries for defining adaptation would improve the ability to mark. As noted before.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 20. Finance sources to mitigation and adaptation According to the CPI Landscape report. track. mostly through international finance invested in developing countries. and monitor the effectiveness of these flows. in 2012. 10 billion went to activities related to water supply and management and 3 billion to agriculture. only 6% of total climate finance or just USD 22 billion on average .2.

Examining the North-South flow of climate finance. flowed to developing countries. public sector finance committed by developed countries to developing countries reached about USD 39-62 billion. we see that in 2012. roughly 50% of total international climate finance. there was also a strong domestic preference. Geographic distribution/dispersion Examining climate finance trends from a geographical perspective. for over 70% or USD 131 billion stemmed from domestic sources. developed country governments committed between USD 4-11 billion in climate marked flows to developing countries. 45-56% of which was channeled through government bodies such as bilateral aid agencies or UN organizations.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 21. or 182 billion. Of that amount. In total. Page 45 of 48 .

Summary Let us summarize the key points from what we have learned about the current landscape of international climate finance.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 22.to support the global transition to a lowcarbon and climate-resilient future. First. There are opportunities to scale-up climate finance . global climate finance flows have plateaued at USD 359 billion in 2012. Significant investments are needed above and beyond the status quo . you will learn how countries can get ready to effectively use climate finance from both public and private contributions. New instruments and enabling environments can tap into private sources of finance. Both public and private flows are critical to mobilize. Page 46 of 48 . In the next lesson.incentivizing both the public and private actors' participation.

Climate finance tracking. presentations. This is all the more important on the private finance tracking side where tracking ultimately relies on voluntarily-disclosed data (press releases. Climate finance tracking and data availability issues The task of tracking climate finance is quite challenging. Page 47 of 48 .). remains imperfect. renewables tender.) or the existence of public support mechanism that require disclosure of project details (clean development mechanism. etc.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 23. although improving. there is a limitation on what can be tracked and captured annually in the Landscape report. etc. Click to learn more about CPI's climate finance tracking methodology. and due to some important information gaps. financial statements.

Page 48 of 48 . References and resources This is the end of Lesson 2. Visit these links for additional information.Climate Finance Essentials Lesson 2 – The Landscape of Climate Finance Presentation Script 24.