Enhancing India’s Readiness to Climate Finance

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Enhancing India’s readiness to access and deliver international climate finance In 2013 the AF reached its $100 million recapitalisation target, largely as a result of contributions from European countries (notably Germany). To date, the Adaptation Fund has approved $211.57 million and disbursed $69 million in 31 countries. The AF’s activities have targeted interventions in the water, land-use, agriculture, health, infrastructure, and ecosystems services focal areas. Funds have also been used to develop early warning systems and support capacity building for disaster-risk reduction. The Adaptation Fund is unique among existing sources of international climate finance, as it is the first fund to pilot the ‘direct access’ funding modality. Direct access is a funding stream where the recipient country can access project finance directly from the Fund without going through a third-party intermediary like the Asian Development Bank or UNDP, (a requirement for GEF and CTF projects). 19 Figure 2.1: Climate finance access modalities below highlights the differences between multilateral access and direct access in more detail. To date, national implementing agencies (NIEs) in 16 developing countries have been accredited to the Adaptation Fund, although only five have received funding thus far. Fifty percent of AF funds have been earmarked for NIEs. In a similar fashion, the Adaptation Fund allows for the accreditation of regional implementing agencies (RIEs) based in developing countries. There are currently 4 accredited RIEs, but none have received funding yet. Figure 2.1: Climate finance access modalities The Future of the Adaptation Fund: In the near term, the Adaptation Fund will continue to be an important (though modest) source of international finance for developing countries. However, the AF allocation framework currently caps the amount of finance that an individual country can receive at $10 million – meaning the Fund will only play a small role in medium-term climate finance delivery for developing countries unless its rules and procedures are changed. The Fund will remain operational until 2020 when the second commitment period of the Kyoto Protocol comes to end. The AF’s main contribution to the future landscape of climate finance is likely to be in the lessons it generates from its experience piloting direct access. As the Green Climate Fund continues to establish its operational guidelines for accreditation to access GCF funds, the challenges and lessons in promoting NIE accreditation to the Adaptation Fund will be closely studied. It has been proposed 19 Druce, L., Grüning, C., & Menzel, C. (2014) Direct access to international climate finance and associated fiduciary standards. Frankfurt School & UNEP. p. 2 Ref: Ricardo-AEA/R/ED59216/Final Report 7
Enhancing India’s readiness to access and deliver international climate finance that the GCF continue using direct access, but improve the support to prospective NIEs where challenges were reported in the AF experience – such as meeting fiduciary standards and environment & social safeguards. These types of lessons will be vital for improving developing country ownership within existing modalities like the Adaptation Fund, as well as emerging sources of international climate finance like the GCF, which is examined in the following section. 2.3 New sources of international climate finance Climate finance is a constantly evolving policy space. As the previous section has shown, existing sources of finance will continue to play a role between 2014 and 2020 (although in the case of the AF and the CTF, it may be a diminishing role). At the same time, there are changes taking place within the climate finance policy regime that could drastically alter the landscape in the years ahead. This section takes stock of emerging sources of climate finance – highlighting the contradictory trends towards consolidation and fragmentation of climate finance delivery. There are a number of emerging funds that will play important roles in delivering climate finance in the medium-to-long-term. Foremost among these is the Green Climate Fund, which is expected to be the chief vehicle for climate finance delivery in the years ahead and therefore represents an attempt at consolidating the climate finance delivery landscape. On the other hand, new sources continue to emerge. In some cases, such as the NAMA Facility, these funds have recently launched project funding windows – which India has not yet chosen to apply to. In other cases, funding mechanisms are still being proposed and discussed at the international level, for instance to establish dedicated Methane and Black Carbon Funds (beyond the limited funding that has been delivered by the Climate and Clean Air Coalition). However not much is known about the current status of these concepts, and it will likely take time before these concepts are translated into reality. The following sections turn to two examples of the emerging climate finance landscape. First it will look at the GCF – the fund which is expected to play a leading role in climate finance deliver under a new global deal at the UNFCCC. Following this analysis, the NAMA Facility will be outlined in greater detail, to highlight how emerging funds can continue to support more specialised thematic/policy windows in the years ahead. 2.3.1 The Green Climate Fund The Green Climate Fund was established in 2010 at COP 16 in Cancun, with a mandate to play a central role in delivering $100 billion per year in ‘new and additional’ climate finance to support climate mitigation and adaptation activities in the developing world. It has taken several years for the GCF to agree on operational procedures, but in May 2014 the GCF Board resolved all six outstanding issues relating to the operationalisation of the fund, paving the way for the formal capitalisation of the fund in November 2014. The GCF has a number of innovative features that make it unique amongst existing sources of international climate finance. These include equal Board representation from developed and developing countries; new access modalities to improve developing country access and ownership; balanced funding priorities between adaptation and mitigation; a potentially large role for the private sector; and a strong focus on ‘readiness’ in the early stages of the GCF funding process. Access Modalities: The Fund will allow national institutions and regional institutions that meet its accreditation criteria ‘direct access’ to its resources, while also allowing countries to work through multilateral development banks and UN agencies as implementing entities. The governing instrument of the GCF also allows, in principle, for sub-national entities including state and municipal governments to have direct access to the fund, although the practical realities of such arrangements for sovereign governments remain to be determined. 20 As such, the GCF anticipates a more competitive access model than previous Funds, wherein countries may choose to work through multiple institutions to harness climate finance. 20 Development banks, for example, can only lend to sub-national entities if they have a sovereign guarantee from national governments. Ref: Ricardo-AEA/R/ED59216/Final Report 8
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Enhancing India’s Readiness to Climate Finance

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