assessing investment & financial flows for climate change

ASSESSING INVESTMENT & FINANCIAL FLOWS

FOR CLIMATE CHANGE

INTRODUCTION TO THE TRAINING

Day 1 Introduction and project context Why conduct an I&FF assessment? UNDP I&FF methodology Sectoral working groupsDay 2 Sectoral working groupsDay 3 Sectoral working groups Reporting Elaboration of national workplan

Agenda

Training modalities Plenary sessions/presentations and group

discussions Fully interactive and participatory Group work within sector teams

Objectives Train national teams on the I&FF

methodology Agree on final workplan with clear

deliverables & deadlines

Modalities and objectives

Overview of preparations Sectors selected: … (list here) National Issues Papers on the selected

sectors ready Draft workplan ready with key deadlines …

(list here) Initial inter-ministerial dialogue on climate

change conducted

Preparations

PROJECT CONTEXT

Why consider Climate Change in development planning

Climate change impacts different sectors, cross-cutting

If not addressed in long-term action, climate change costs will be high

Countries may want to position themselves To ensure that the negotiation outcomes are

coherent with national interests & priorities To be able to participate in the mechanisms

that will be created

Why consider Climate Change in planning

Bali Road Map

Focus on 4 building blocks: Mitigation Adaptation Technology development & transfer Financial resources and investment

Context of climate change negotiations

What is Adaptation?

Closely linked to development Will require adjustments across every

aspect of society, environment & economy Linked to economic development, poverty

alleviation, disaster risk management Requires capacity for short- & long-term

planning

Adaptation & Mitigation

Process of sustainable & permanent adjustment to changing circumstances

What is Mitigation?

Bali Action Plan suggests nationally appropriate mitigation actions by developing country Parties in the context of sustainable development, supported and enabled by technology, financing and capacity-building, in a Measurable, Reportable and Verifiable manner (MRV)

International agreement will be major challenge

Adaptation & Mitigation

“An anthropogenic intervention to reduce the sources or enhance the sinks of greenhouse gases.” (IPCC, 2009)

Bali Road Map – Important outcomes Actions to address climate change are

linked to economic growth & sustainable development goals

Shared understanding for the necessity of common efforts, by all countries

Deadline for negotiations by 2009 New mechanisms & new demands to

countries


Key messages of negotiations Importance to show flexibility to support

any new agreement & new financial architecture

Focus on national capacities for Broader participation of various decision

makers Longer term planning Implementing broader programmatic

approaches Understanding the finance & technology

opportunities


Importance of planning tools To identify national priorities To facilitate cooperation among different

ministries To build strategies to deal with climate

change To create a coherent base of information

of climate change impacts on and opportunities in key sectors

These points are addressed in the project

Project context

Why an I&FF assessment

An assessment of I&FF is important to Understand the magnitude & intensity of

efforts needed nationally to address climate change in key sectors

Facilitate the integration of climate issues into national development & economic planning

Expand the information & knowledge base Contribute to the elaboration of negotiating

positions for international climate negotiations

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PROJECT STAGES & SUPPORT

Goals Development of national policy options to

address climate change in key sectors Increased capacity to co-ordinate negotiating

positions at national level & participate in the UNFCCC process

Outcomes National awareness raised Investment & financial flows assessed for key

sectors Web-based knowledge platform populated

http://www.undpcc.org/

Project goals & outcomes

Sequencing of national activities

Pre-workshop preparation (2 months)

National workshop

on Bali Action Plan,

national issues

Assessment of I&F flows to address CC mitigation/adaptation options for up to 3 key economic sectors (6-8 months)

National workshop to present

results, policy

options• Key line

ministries engaged

• Key sectors identified

• National issues papers prepared

National workshop on:

• Bali Action Plan

• Adaptation, mitigation, technology transfer,

financing + LULUCF

• Key sectors

UNDP methodology on assessing I&F flows

Backstopping from regional centres of excellence

• Update on Bali Action Plan negotiations

• I&F flows assessments presented

• Post-2012 preparation

Preparation stage Implementation stage Reporting stage

Define & agree National objectives/goals Key sectors/scope I&FF team Capacities/needs: methods, information… Institutional arrangements On workplan/budget Available scenarios

Preparation stage (1- 2 months)

Conduct I&FF assessment in key sectors selected by the country using the UNDP I&FF methodology and the sector specific guidance & reporting guidelines

Guidance & procedures for Documentation & archiving Spreadsheet management Quality control & quality assurance

procedures

Ongoing activity, not starting at the end of the assessment

Define outcome (decision making tool, policy tool), target group (internal/external) to draft report

Ensure good drafter for preparation of report(s)

Purpose: documentation of steps and processes for interpretation of outcomes & for later follow-up work

Reporting stage

Support to the 3 stages of the project Work plan guidance Methodological guidance Reporting guidance

Regional Centres of Excellence Training on assessment of I&FF 20 days of technical backstopping incl.

Review of workplan, draft and final assessments

Guidance on scenarios, data, approach

Guidance available + support provided

Guidance available + support provided

Knowledge platformPublic space Provides database of documents on climate

change Provides information on the project Dynamic: Users can upload resources;

results and updates “pushed” to site visitors

Member space Faciliate sharing of experiences in groups

(country groups, thematic groups) Private access for national project activities

Country checklist Sectors selected

Major information background Draft work plan

Key deadlines?Roles?

TeamIn place?All recommended persons/groups in?

Institutional arrangements in placeTo share dataTo collaborate

Team composition

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THE I&FF ASSESSMENT

Investment Flow An investment flow (IF) is the capital cost

of a new physical asset with a life of more than 1 year

Limited to new physical assets, because of climate change implications for the duration of the operating lives of the facilities & equipment purchased

Definition I&FF and O&M

Financial Flow A financial flow (FF) is an ongoing

expenditure on programmatic measures; financial flows encompass expenditures other than those for expansion or installation o few physical assets.

Primarily ‘operation & maintenance’ (O&M) costs: salaries, raw materials, equipment maintenance, depreciation, utilities, rent, insurance, taxes etc.


Operation & Maintenance (O&M) costs of new physical assets

The physical assets purchased with investment flows will have operation & maintenance (O&M) costs associated with them

Can vary considerably among investment flow types & have a significant effect on the total cost of an investment


Entities of I&FF Households Corporations Government

Sources of I&FF Domestic equity & subsidies Foreign debt Foreign aid Foreign & domestic borrowing Etc.

Entities & sources

What is a scenario? An internally consistent & plausible

characterization of future conditions over a specified time period

A baseline scenario reflects business-as-usual conditions, describes what can occur without new policies to address climate change

A mitigation scenario incorporates measures to mitigate GHG emissions

A adaptation scenario incorporates new measures to respond to the potential impacts of climate change

Scenarios

What questions does the I&FF assessment help answer?

What are the adaptation/mitigation options in certain sectors in the next 25 years?

Who is investing in the sector/major players & sources?

What shifts/increase in I&FF will be needed in the sector?

What will be the overall needs for additional I&FF?

I&FF work

Sources of information

Sources of information include National Communications (1st, 2nd) National Adaptation Programmes of Action

(NAPAs) National strategies & plans System of National Accounts (SNA) etc.

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I&FF METHODOLOGYSTEP BY STEP

Steps in the Sectoral Assessments of I&FF to Address Climate Change

Key Steps: Mitigation

Define detailed scope of the sector Identify preliminary mitigation (or

adaptation) measures Specify assessment period & base year Select analytical approach

Define detailed scope of the sector1. Establish key parameters of assessment

Criteria for scoping the sector National priorities Pre-work from National Communications,

NAPAs etc. Data availability

Preliminary mitigation/adaptation measures

Selection of measures should be based on National & sectoral country priorities Prior work on mitigation/adaptation Feasibility of implementation Benefits of measures (environmental,

economic, & social)

Identify preliminary mitigation or adaptation measures

1. Establish key parameters of assessment

How to scope a sector Determine specific subsectors that will be

included e.g. within agriculture: crop cultivation,

livestock, fishing … Determine which processes, activities,

entities and geographic regions are included in the sector



Potential sectoral overlaps


Addressing additional benefits The methodology does not provide for

quantitative, but qualitative analysis, examples: Change of crop type helps to adapt &

emits less GHG Enhanced water management to adapt to

climate change can also have positive health effects

Job creation through a new policy


Assessment period & base year Base year 2005 recommended (or latest

available) Assessment period of 2005-2030

recommended

Cost accounting issues Constant 2005 US$ are recommended Costs for assets should be reported in the

year in which they are expected to be incurred

Discounting of costs should be done

Specify assessment period & base year1. Establish key parameters of assessment

Preliminary mitigation/adaptation measures

Measures can be obtained from Existing sectoral or national plans National Communications Technology Needs Assessments (TNAs) National Adaptation Programmes of

Action (NAPAs)



Any of these analytical approaches can be used to develop scenarios, & associated streams of annual I&FF and O&M costs A suitable sectoral model A sectoral plan A projection of sectoral trends The current situation in the sector A combination of those approaches

Select analytical approach1. Establish key parameters of assessment

At the end of step 1 Sector scope defined in detail, avoiding

overlaps with other sectors Base year & assessment period (~2030)

specified Preliminary mitigation (or adaptation)

measures identified Analytical approach selected (model or

spreadsheet exercise)

Checklist step 11. Establish key parameters of assessment

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Compile annual I&FF data, disaggregated by investment entity, source, & investment flow versus financial flow

Compile annual historical O&M data, disaggregated by investment entity & source

Compile other input data for scenarios

3-10 years of historical I&FF data should be collected

Data should be Compiled for each investment type Annual Disaggregated by investment entity & source Divided into investment & financial flows

Reminder: What are the data sources? They determine data compilation!

Compile annual I&FF data2. Compile

historical I&FF data and other input data for

scenarios

2. Compile historical I&FF data and other input data for

scenarios

Compile Historical I&FF Data & Other Input Data for Scenarios

Category of Investment Entity

Source of I&FF Funds

Investment Type 1

(IF, FF, Total I&FF)

Investment Type 2


Investment Type 3


Total Investment

I&FF

Households Domestic

Corporations

Domestic

Foreign

Total Corporation Funds

Government

Domestic

Foreign

Total Government Funds

Template for 1 Year of Historical I&FF Data (simplified)


scenarios

Compile annual historical O&M data, disaggregated by investment entity & source

Annual O&M costs for the physical assets that are in operation during the historical period

Collect for 3-10 years Information about the expected

lifetimes of the assets in operation during the historical period

Compile annual historical O&M data2. Compile

historical I&FF data and other input data for

scenarios

Template for Historical Annual O&M Data for an Investment Flow

Compile annual historical O&M data

Category of

Investment Entity

Investment Type 1: 2003 Investment Flow & Associated Annual O&M

(in 2005 US$)

2003 Investment FlowAssociated Annual O&M During

Historical Period

Source of IF Funds

IFSource of O&M

Funds2003 O&M

2004 O&M

2005 O&M

HouseholdsDomestic Domestic

Total Household IFTotal Household O&M

Corporations

Domestic Domestic

Foreign Foreign

Total Corporation IF

Total Corporation O&M

Government

Domestic Domestic

Foreign Foreign

Total Government IF

Total Government O&M

Total Annual O&M (2005 US$)


scenarios

Compile other input data for scenarios

Other historical & non-historical data relevant to the sector might be necessary

Depends on analytical approach, sectoral scope, & whether mitigation or adaptation focus For a model: e.g. basic socioeconomic

& technological data For scenario development: information

about current, past, & expected future GHG emissions & expected impacts & vulnerabilities


scenarios

Checklist step 2

At the end of step 2 Necessary data identified & access

located Arrangements for data-sharing made Annual I&FF data compiled (3-10 years), Annual historical O&M data compiled (3-

10 years) Other input data for scenarios compiled


scenarios

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Describe: Socioeconomic trends Technological change/advances Business-as-usual investments Define model/spreadsheet to be used for the

assessment

Define baseline scenario

Characterizing the sector over the assessment period under business-as-usual conditions, in the absence of new policies on climate change Expected socioeconomic trends Technological change Expected investments in the sector,

including the nature, scale, & timing of those investments

Define baseline scenario

Should be consistent with trends reflected in the historical data collected in the previous step

Current or past climate change activities are considered in the baseline scenario

Checklist step 3

At the end of step 3The baseline scenario is developed Agreed which policies & measures go

into it Socioeconomic trends described Technological change/advances

estimated Business-as-usual investments defined Exact model/spreadsheet to be used

defined

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Derive annual IF & FF estimates, disaggregated by investment entity & source

Derive annual O&M estimates, disaggregated by investment entity & source

Derive annual IF & FF estimates

Example step 4: Energy sector Labeling the activities, measures and

policies that are considered to go into the baseline scenario (step 3) with their costs Sticking to the current energy mix -

label it with expected costs for power plants etc.

Government to expand the current grid – label it with expected costs for infrastructure etc.

…

Derive annual IF & FF estimates

Compile annual estimates disaggregated by

Investment entity households, corporations, government

Source domestic or external

Investment flow facility/technology type 1, type 2…

Financial flow type practice/measure type 1, type 2…

Derive annual O&M estimates

Annual estimates of O&M costs for the baseline scenario are needed, including O&M costs for assets purchased

during the assessment period O&M costs for assets purchased

before the assessment period & that are expected to still be in operation

Checklist step 4

At the end of step 4 Annual I&FF estimated - each of the

policies & measures of the baseline scenario is calculated

Annual O&M costs estimated – for each of the investments the O&M costs are calculated

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Sector is selected for Adaptation A baseline scenario & an adaptation

scenario will be developed for that sector

Sector is selected for Mitigation A baseline scenario & a mitigation

scenario will be developed for that sector

Define mitigation/adaptation scenario

Criteria for the mitigation/adaptation scenario

Contains predefined measures and policy options

Is consistent with the baseline scenario regarding background information (assumed population growth etc.)

Is based on available data

Checklist step 5

At the end of step 5The baseline scenario is developed: Agreed which policies & measures go

into it Socioeconomic trends described Technological change/advances

estimated Business-as-usual investments defined Exact model/spreadsheet to be used

defined

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Derive annual IF & FF estimates, disaggregated by investment entity & source

Derive annual O&M estimates, disaggregated by investment entity & source

Derive annual I&FF & O&M estimates

Example step 6: Energy sector Labeling the activities, measures and

policies that are considered to go into the mitigation/adaptation scenario (step 5) with their costs

Changing energy mix to more renewables - label it with expected costs for power plants etc.

Raising awareness of energy users – label it with expected costs for awareness campaign

Putting into place incentive system to avoid emissions – label it with expected costs for implementation etc.


Compile annual estimates, disaggregated by:

Investment entityhouseholds, corporations,

government Source

domestic equity, foreign debt, domestic subsidies, foreign aid

Investment flow type facility/technology type 1, type 2…

Financial flow typepractice/measure type 1, type 2…

Use data to the degree disaggregated as available


Annual estimates of I&FF for the mitigation/ adaptation scenario are derived

As in the baseline scenario, costs should be In real terms (ideally in constant 2005

US$) Discounted Reported in the year in which they

are expected to be incurred

Checklist step 6

At the end of step 6 Annual IF & FF estimated – each of the

policies & measures of the baseline scenario is calculated

Annual O&M costs estimated – for each of the investments the O&M costs are calculated

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Estimate changes in cumulative I&FF Estimate changes in annual I&FF

Estimate changes

Estimates the changes in I&FF needed to implement the mitigation (or adaptation) measures in the sector 2 objectives To determine how cumulative

incremental I&FF would change To determine how annual investments

would change

Estimate changes

time (in years)

projected amountof I&FF(in US$)

baselinescenario

mitigation scenario

additional investments

less investments

20302005

Example how cumulative incremental I&FFwould change (all entities)

Result:By the chosen time horizon (e.g. 2030)x (amount of money) needs to be investedx (amount of money) will be saved

Note: The graph is only a fictitious example to illustrate the methodology and does not imply any assumed trend within the sector. Alternative examples could imply more additional investments needed in the future or less saved investments. The trend will vary according to the sector analyzed, the national circumstances, etc.

Estimate changes

Example how cumulative incremental I&FFwould change (all entities)

time (in years)

projected amountof I&FF(in US$)

adaptation scenario

baseline scenario


less investments

20302005 Result:

By the chosen time horizon (e.g. 2030)x (amount of money) needs to be investedx (amount of money) will be saved

Note: The graph is only a fictitious example to illustrate the methodology and does not imply any assumed trend within the sector. Alternative examples could imply less additional investments needed in the future or more saved investments. The trend will vary according to the sector analyzed, the national circumstances, etc.

Estimate changes

investment entity

households corporations government

baseline scenariomitigation scenario


less investments

projected amountof I&FF(in US$)in a year


Example how annual investmentswould change (per year)

Result:To reach the Mitigation scenariox (amount of money) less of this source neededx (amount of money) more of this source needed

Note: The graph is only a fictitious example to illustrate the methodology and does not imply any assumed trendwithin the sector. Alternative examples could imply more additional investments needed in the future or lesssaved investments. The trend will vary according to the sector analyzed, the national circumstances, etc.

Estimate changes in cumulative I&FF

2 calculations to determine how cumulative investments would change between the baseline scenario & the climate change scenario 1st calculation: Estimating total I&FF

needed to implement each investment type in the sector

2nd calculation: Estimating total I&FF needed to implement all the investment types in the sector

Estimate changes in annual I&FF

3 calculations to determine how annual investments would change between the baseline scenario & the climate change scenario 1st calculation: Estimating the I&FF

needed to implement each investment type in the sector

Shows how investments in individual investment types would change over time

Estimate changes in annual I&FF

2nd calculation: Estimating I&FF needed to implement all investment types in the sector, for each source/investment entity

Shows how investments by each source/investment entity would change over time

3rd calculation: Estimating I&FF (for all investment types in the sector, & for all sources)

Shows how total investments in the sector would change over time

Checklist step 7

At the end of step 7 I&FF of the baseline scenario subtracted

from adaptation/mitigation scenario: Changes in cumulative I&FF estimated –

per investment type & for all investment types

Changes in annual I&FF estimated – per investment type, per source & per sector

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Determine policy instruments & measures to encourage changes in I&FF

Identify the entities that are responsible for the significant incremental changes in I&FF

Determine the predominant sources of their funds, important to distinguish between public & private sources of finance

Evaluate policy options

Re-evaluate initial prioritization of mitigation/ adaptation measures from step #5, based upon the incremental I&FF estimates

Determine investment entities responsible for most significant changes in I&FF & predominant sources of funds

Evaluate policy measures to implement proposed measures & to change investment patterns, & additional sources of funds

Checklist step 8

At the end of step 8 Policy instruments & measures

determined to encourage changes in I&FF

Former instruments & measures re-evalued

Entities responsible for incremental changes in I&FF identified

Predominant sources of their funds determined

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Integrate I&FF results, & evaluation of policy instruments & measures, across sectors, & across mitigation & adaptation

Summarize objectives of study, methodology, inputs, & results in report

Complete reporting templates

Integrate I&FF results & evaluation of policy instruments & measures

Sectoral results are compiled so that mitigation/ adaptation investments for each source & investment entity, & for each year, can be compared across sectors & across mitigation/adaptation

“Reporting Guidelines for the Assessment of Investment & Financial Flows to Address Climate Change” contains spreadsheets for this

Define purpose & target group to prepare report accordingly


Category of Investment Entity

Source of I&FF Funds

Incremental Cumulative (2005-2030) Total I&FF

(million 2005US$)

Mitigation Adaptation

Energy Forestry Forestry Public Health

Households

Domestic

Equity & debt

Government support (subsidies)

Total Household Funds (all domestic)

Etc…

Incremental Cumulative I&FF for All Investmentsin All Sectors


Year

Incremental Annual Total I&FF(million 2005US$)

Mitigation Adaptation

Energy Forestry Forestry Public Health

2005

2006

Etc…

Incremental Annual I&FF for All Investmentsin All Sectors


Documentation & Reporting during the assessment

Report will be used for 2nd national workshop Further follow up activities Note: Possible different audiences &

different uses of report

Checklist step 9

At the end of step 9 I&FF results, policy instruments &

measures integrated across sectors Reporting of the I&FF assessment

completed regarding objectives, methodology, inputs & results

Steps in the Sectoral Assessments of I&FF to Address Climate Change

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OUTLOOK &NEXT STEPS

Way forward

What next? Nurturing links to national policymaking

processes Leveraging international donor assistance Conducting sensitivity analysis/capacity

assessment Preparing periodic updates to the

assessments

assessing investment & financial flows for climate change

Documents

climate change costs

climate changeto

national prioritiesto

economic development

iff methodologyagree

new mechanisms new demands

sectoral working groupsday

undp iff methodologysectoral