SCN

37-528

HOW CAN DEVELOPING COUNTRIES CONTRIBUTE

WHAT CAN INDUSTRIALIZED COUNTRIES DO?

by

Roberto Ridolfi

May 20, 2009.

www.ec.europa.eu

Reproduced by The European House-Ambrosetti for the Forum “Developing the Regions of Africa and Europe”, Taormina, October 7 and 8, 2010.

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EuropeAid

Climate Finance –The Mechanics of Public-Private CooperationBerlin, 20 May 2009

How can developing countries contribute –

What can industrialized countries do?

Dr Roberto RidolfiEuropeAid

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EuropeAidHow can developing countries contribute –What can industrialized countries do?

The current context: • International negotiations on climate change have entered

"full negotiation mode"• Key issues on the table for Copenhagen:

o ambitious reduction targets for developed countries, o nationally appropriate mitigation actions by developing

countries o the finance architecture of the agreement, including

support for emission reductions, adaptation, technology and capacity building

• A new Joint Working Group between the Economic Policy Committee and the Economic and Financial Committee has been established to bring Finance Ministers into the climate file

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EuropeAid

ENVIRONMENT (ENRTP)Art. 13 of DCI

Former programmes Tropical Forests & Environment

+ Pilot and preparatory actions

2007 €2008 €2009 €2010 €

• Places environment at the core of development

• Acts worldwide

MDG 7

74 million101 million162 million153 million

ENVIRONMENT & SUSTAINABLE MANAGEMENT OF NATURAL RESOURCES

including ENERGY

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EuropeAid

to integrate environmental protection requirements into the Community's development and other

external policies

ENRTP Global objective

to help promote the Community's environmental and energy policies abroad in the common interest

of the Community and partner countries and regions

as well as

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EuropeAid

1. Working upstream on MDG7: promoting environmental sustainability

2. Promoting implementation of EU initiatives and internationally agreed commitments

3. Improving expertise for integration and coherence

4. Strengthening environmental governance and EU leadership

5. Support for sustainable energy options in partner countries/regions

ENRTP Priority Themes 2007-2010

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EuropeAidENRTP Priority Actions in climate change

• Global Energy Efficiency and Renewable Energy Fund(GEEREF)

• Global Climate Change Alliance (GCCA)

• Carbon capture and storage (CCS)

• Targeted actions

• Joint Management Actions with international organisations (e.g. UNEP, World Bank)

• Call for Proposals

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EuropeAidGEEREF – addressing barriers to private investment in developing countries

• Energy efficiency and renewable energy projects face difficulties in raising commercial funding. Lack of risk capital in developing countries and transition economies.

• Long pay-back periods on clean technology are an obstacle to investors. This is even more the case in regions that are considered to be high-risk.

• Small projects can have higher administrative and transaction costs. Consequently international financial institutions tend not to provide equity finance for projects below 10 million Euros.

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EuropeAidOvercoming barriers to private investment in developing countries• Attract private investors by using public money to protect them against the risks. Innovative public-private partnership - neither lend nor grant funds, but equity finance.

• Equity finance via investment structures (mainly fund of fund) to regional energy efficiency and renewable energy projects and initiatives.

• Public-private initiative: subordination of publicfunding; return preference (up to 10% p.a.) for private funding, but subordination on policy to institutions.

• Technical Support: EUR 5m for technical assistance (training, research, start-up, promotion of good governance…) managed by the European Investment Fund on behalf of the Commission.

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EuropeAidWhere will GEEREF invest?

• Estimated investment in approx. 15 “Regional Funds” with projects in developing countries with a priority to meeting the needs in sub-Saharan Africa, the Caribbean and the Pacific.

• Commercial finance structures, which provide equity finance to small and medium sized regional energy efficiency and renewable energy projects, Sustainable development strategy, Market-based approach with ethical safeguards

• Combining efficiently financial viability with sustainable social and environmental returns.

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EuropeAid

Development

Energy Efficiency

Environment

Financial Performance

GEEREF Decision Making Process

• Target levels for approved projects (quantitative and qualitative input data)

Balance

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EuropeAidWhat will GEEREF fund?

•A Fund-of-Funds investor: 70% funds, 30% projects

For example:• Biomass, wind, hydro, solar, geothermal• Utility based and distributed generation, etc• Small and medium sized projects and initiatives: EUR 10m with preference on EUR 1m

• Energy efficiency

• Nuclear power excluded

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Emerging Markets Ren./Sust.

Energy Funds

Investments in Private Equity/Venture Capital Funds

Emerging Markets Ren./Sust.

Energy Funds

Emerging Markets Ren./Sust.

Energy Funds

EstablishedIntl Infrastructure

Funds

Ren/Sust Energy Projects & SMEs

Ren/Sust Energy Projects & SMEs

Ren/Sust Energy Projects & SMEs

Co-investments with selected Funds

GEEREF

European Commission

€80 M

InstitutionalInvestors:DE €24 MNO €9 M

Private Investors

(private banks)

Advisor/Manager: EIF/EIB

Global Energy Efficiency and Renewable Energy FundStructure: Commercial ElementsStructure: Commercial Elements

Ren/Sust Energy Projects & SMEs

Ren/Sust Energy Projects & SMEs

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EuropeAidGlobal Climate Change Alliance (GCCA)– Scope & Objectives

Two pillars:• Deepen policy dialogue between the EU and developing

countries, in particular the LDCs and SIDS• Increase financial cooperation in climate change area

Objective: the Alliance will help poor developing countries most vulnerable to climate change:

o adapting to the effects of climate change, in support of the achievement of the MDGs,

o participating in the global mitigation effort, where this benefits poverty reduction and sustainable development.

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EuropeAidGCCA - Implementation structure

Assistance to gov:

- CC integration in policies

- preparation of financial

proposals for in-country

activities; preferably in

BS modality

Support Facility

3M€

Selection criteriafor countries

Capacity building:

- seminars,

- conferences,

- experts mostly

at regional level

Activities in pilot countries:

Vanuatu, Maldives, Tanzania,

Cambodia (12.5M€) from 2008

BS possible?

YES: General BSor SBS in CCsensitive areas,concentrating onwater, agriculture,forest, CDM andDDR

NO: Projects linked to NAPA's& concentrating on water, agriculture, forest, CDM, DDR

GCCA contributions

EC 60M€Sweden 4.5M€Czech Rep. 0.2M€+ Others

Preferred aid modality:

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EuropeAidCarbon capture & storage (CCS) Why cooperate with third countries?

• Europe alone cannot solve the problem (emissions of emerging economies)

• Cooperation on clean technologies may help politically to get a deal on post-2012

• Demonstration in Europe and abroad can create opportunities for European companies

• Commitments under UNFCCC and bilateral relations (ie 2005 EU-China Summit on Near Zero Emissions Coal) as well as in both CC & Energy packages

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EU-China Cooperation on Near Zero Emissions Coal (NZEC)

• EU-China Summit (Sept 2005) Declaration on Climate Change & Energy:

“ We will aim to achieve the following co-operation goals by 2020: To develop and demonstrate in China and the EU advanced, near-zero emissions coal technology through carbon capture and storage ”

• Phase I: R&D: 3 projects funded by EC & UK• Phase II (2009-2011) Feasibility and design• Phase III (2011-?) Construction and operation

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EuropeAidA Special Purpose Vehicle• Special Purpose Vehicle to combine private and public financing

• Possible revenue streams:o Carbon creditso Enhanced oil recovery

• Advantages of relative speed, ability to blend funds, usable structure already exists

• Flexibility of design: opportunity for “financial engineering” to achieve certain financial/policy outcomes

• Risk-sharing – public money acts as a buffer, meaning that investment is more attractive for private investors

• Private investors can engage at any of several levels (eg in the SICAV itself or in the company that the SICAV invests in)

• Precise modalities of SPV to be elaborated under ENRTP

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EuropeAid

Environment and sustainable management of natural resources, including energy

Launched in the beginning of 2008

€ 64.5 Million€1.5 billion(Project size €500,000 - € 4 million)

46 projects

Incl. climate change projects

1037 Concept Notes332 CN (about 35%) on climate change

200 Full Application Form

FINANCED by European Commission

RECEIVED

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EuropeAidGlobal climate change projects2007-2008 Call

• Local Governments’ mobilisation and backing for the development and implementation of a global and comprehensive post-2012 climate change agreement

• The Climate Change Media Partnership (CCMP)o Developing World Media Capacity Building on the Post

2012 Climate Change Negotiations and the CDM

• Capacity Development for Adaptation to Climate Change & GHG Mitigation in Non Annex I Countries

o To improve the ability of developing countries to develop adaptation measures and plan mitigation strategies

o EC is helping these three projects find synergies

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EuropeAidAFTER THE EVALUATION PROCESS…?

• Despite their high scores, some projects didn’t obtain an EC grant due to budget limitations.

• To build more effective and inclusive partnerships,

• To share efforts made by the Commission in selecting the Projects, EuropeAid organised…

86 PROJECTS FIT FOR FUNDING!presented at the AUCTION FLOOR

Conference!

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EuropeAidAUCTION FLOOR: HOW DOES IT WORK?

1. Booklet

2. Match-makingconference

held on 13 March in Brussels

300 participants:- Member States- Regions- Foundations- Private sector - 86 Project managers- Media

5 SUB-THEMES

- BiodiversityBiodiversity 23 projects- Climate changesClimate changes 7 projects- Desertification Desertification 14 projects- Forests Forests 36 projects- SustainableSustainable EnergyEnergy 6 projects

http://ec.europa.eu/europeaid/auctionfloor

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EuropeAidThe Position of the Commission

• The EU will contribute its fair share of the global additional financial effort.

• For mitigation, the bulk of this would come through the international carbon market linked to the EU's ambitious mitigation targets. The more ambitious the Copenhagen agreement, the larger the potential flows.

• Most adaptation support in the most vulnerable countries such as the Least Developed Countries and the Small Island Developing States will have to be international public financial support.

• Both private and public financial support will be needed. The private sector will be the main source for mitigation, but without public support, developing countries may be unable to create the institutional capacity and policy frameworks.