METHODOLOGY FOR ASSESSING INVESTMENT AND FINANCIAL FLOWS TO ADDRESS CLIMATE CHANGE - PowerPoint PPT Presentation

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METHODOLOGY FOR ASSESSING INVESTMENT AND FINANCIAL FLOWS TO ADDRESS CLIMATE CHANGE

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Title: METHODOLOGY FOR ASSESSING INVESTMENT AND FINANCIAL FLOWS TO ADDRESS CLIMATE CHANGE


1
METHODOLOGY FOR ASSESSING INVESTMENT AND
FINANCIAL FLOWS TO ADDRESS CLIMATE CHANGE
2
INTRODUCTION
3
WHY?
Why undertake an IFF assessment?
  • To articulate national needs to address climate
    change in key sectors in a systematic way
  • To encourage long-term sectoral planning that
    incorporates climate change investment decisions
  • To yield more detailed estimates of the
    incremental investment needed to address climate
    change ? can feed into National Adaptation
    Programmes of Action, National Communications,
    or Technology Needs Assessments
  • To estimate the magnitude of national efforts
    required to address climate change in a
    standardised, objective manner and inform
    national negotiators
  • To engage policy-makers in making climate
    investment decisions that are driven by national
    development and poverty reduction priorities

4
WHAT?
What does a national assessment of investment
financial flows seek to answer?
From a development perspective, what does my
country need to do to address climate change in
selected key sectors, and what financial
landscape will be required to achieve those needs?
  • The IFF assessment considers
  • What are the adaptation/ mitigation options for
    selected key sectors in the next 25 years?
  • Who is investing in the sector ? Who are the
    major players funding sources?
  • What shifts/increases in IFF will be needed in
    the sector?
  • What will be the overall needs for additional
    IFF to address climate change?

5
WHO?
IFF assessment requires a multi-disciplinary
team
  • For each sector
  • Environmental/climate specialists to build
    scenarios under climate change
  • Planning experts to
  • Assess implications of the scenarios on existing
    development plans in chosen sectors consider
    how mitigation or adaptation measures would be
    implemented
  • Finance/economics experts to cost the measures
  • Representatives from all relevant ministries
  • Academic, NGO, and private sector inputs also
    useful

6
HOW?
UNDP IFF methodology
  • Provides approach through which countries
  • Take investment and financial decisions for
    mitigation and adaptation in priority sectors
    over next 25 years based on national development
    priorities
  • Build a mitigation or adaptation scenario for
    each sector
  • Cost their needs against a baseline scenario
  • Engages directly with policy-makers to ensure
    that decisions are country-led and driven by
    national priorities
  • Captures the full financial needs of countries
    methodology includes both specific physical
    investments and the wider financial flows for
    non-physical expenditures

7
General Vision
METHODOLOGY
  • 1. For each sector, evaluate investments and
    financial flows for two policy scenarios
  • Baseline Scenario
  • Adaptation or Mitigation Scenario
  • 2. Estimate (cost) the additional flows needed to
    implement new adaptation or mitigation measures
    (that is, the difference between flows for the
    two scenarios).
  • 3. Breaks spending down across three entities
    government, corporations (including NGOs), and
    households

8
1 What is my cumulative incremental IFF over
time?
Projected amount of IFF (in US)
adaptation scenario baseline scenario
Incremental cost
2005
time (in years)
2030
9
2 How would annual investments change (per
year)?


Projected amount of IFF (in US) in a year
baseline scenario mitigation scenario
additional investments
less investments
additional investments
investment entity
households corporations
government
10
IFF ASSESSMENT MAIN CONCEPTS
11
Defining Investment and Financial Flows?
  • IFF Monetary flows needed to implement
    policy options in key sectors from the national
    perspective.
  • Investment Flow (IF) capital cost of a new
    physical asset (buildings, equipment, software,
    etc.) with life of more than one year.
  • Financial Flow (FF) expenditure not related to
    the purchase of physical assets (typically
    programmatic expenditures, e.g. vaccination
    campaign).
  • Operation Maintenance Costs (OM) for physical
    assets (salaries, raw materials, taxes,
    insurance, etc.)

12
Examples of investment financial flows
Sector / Approach Adaptation/Mitigation Measures Investment Flows (FI) Financial Flows (FF) Operation and maintenance Costs (OM)
ENERGY (MITIGATION) Increased energy efficiency Energy saving appliances Training programmes for auditors / Information campaigns OM of new appliances
ENERGY (MITIGATION) Wind farm Windmills   OM of windmills
WATER (ADAPTATION) Water conservation   Information campaigns  
WATER (ADAPTATION) Rainwater harvesting Storage mediums (tanks, jars, etc.) Information campaigns OM of storage mediums
COASTAL ZONES (ADAPTATION) Monitoring of infrastructure New monitoring equipment Monitoring campaigns OM of new equipment
COASTAL ZONES (ADAPTATION) Raising dock levels Construction costs   OM of new infrastructure
13
What is a scenario?
  • An internally consistent and plausible
    characterization of future conditions over a
    specified time period (2005-2030).
  • Baseline Scenario reflects business-as-usual
    conditions. Describes what can occur without new
    policies to address climate change.
  • Mitigation Scenario incorporates new measures to
    mitigate (reduce) greenhouse gas emissions.
  • Adaptation Scenario incorporates new measures to
    respond to the potential impacts of climate
    change.

14
Scenarios and policies - Example
  • Example - Water Sector
  • Baseline Scenario provide water to a growing
    population by extracting it from an aquifer
    (usual practice in the last years).
  • Adaptation Scenario Climate change will
    reduce aquifer refill, so it is decided to build
    a dam.
  • The additional investment flows will be the
    costs of building the dam (versus the investment
    needed to keep on extracting water from the
    aquifer)

15
METHODOLOGY
Steps to conduct sectoral IFF Assessment
16
IFF METHODOLOGYSTEP BY STEP
17
Step 1 Establish key parameters of the
Assessment
18
  • The team should decide
  • Sector scope (activities, geographical areas,
    etc.) and overlaps avoidance
  • Analysis period
  • Key mitigation/adaptation measures (preliminary
    list)
  • Analytical approach for defining future
    scenarios

19
Identify potential sectoral overlaps
Water
20
Step 2 Compile historical IFF data and other
inputs for scenarios
21
Compile annual IFF data
  • Compile historical annual data (IFF and OM) to
    address the following questions
  • How much was invested in each sector (in recent
    years)?
  • What are the main types of investment in each
    sector?
  • Who has undertaken the investment?
  • What is the usual life of investments and
    duration of programmes?
  • Suggested period 1995-2005
  • Data should be collected for 3 - 10 years.

22
Step 3 Define Baseline Scenario
23
  • Describe what is likely to occur in the
  • absence of ADDITIONAL policies to address
    climate change
  • Baseline scenario should reflect
  • Current sectoral national plans
  • Expected socioeconomic trends
  • Expected investment trends (for each subsector)

24
Step 4 Derive IFF and OM for baseline
scenario
25
  • Estimate IFF for the sector up to 2030
  • Information should be disaggregated by
  • Year
  • Investment entity (Corporations, Government,
    Consumer)
  • Source of funds (national, Foreign Direct
    Investment, Official Development Assistance)

26
Step 5 Define Mitigation or Adaptation Scenario
27
  • Describe the situation where new measures are
    taken to adapt to/mitigate climate change

28
  • 1. Reevaluate and reprioritize the
    mitigation/adaptation measures previously defined
    according to
  • Develpment plans/experience.
  • Technological and socio-demographic tendencies
    identified for baseline scenario.
  • New information gathered during the project.
  • 2. Include qualitative information regarding
    benefits (health, other sectors, etc.)
  • 3. Redefine measures in order to classify them
    in
  • New measures (eg. new dam)
  • Measures that are extensions of measures
    included in baseline scenario (eg bigger dam)

29
Step 6 Derive IFF for Adaptation/Mitigation
Scenario
30
  • Project the IFF and OM associated with the
    mitigation/adaptation measures selected.
  • Disaggregate flows by
  • Year
  • Investment entity and source

31
Step 7 Estimate additional IFF needed to
implement adaptation/mitigation measures
32
  • Subtract the baseline IFF from the
    mitigation/adaptation IFF

33
7. Estimate additional IFF for
adaptation/mitigation
Estimate additional IFF
  • Additional IFF
  • IFF estimated for Adaptation/Mitigation Scenario
  • minus
  • IFF estimated for Baseline Scenario
  • IFF are estimated for
  • Each of the sectors selected (per year -
    cumulative)
  • Each of the adaptation/mitigation measures
    selected
  • New investment and programmes
  • Extended investment of programmes included in
    baseline
  • All investments and all programmatic expenditures
    (detailed per investment entity and financing
    source)

34
Step 8 Evaluate policy implications
35
  • Re-evaluate adaptation/mitigation measures, given
    costs and national development objectives.
  • Identify the entities responsible for incremental
    changes in IFF and the main sources of
    investment/programme funding
  • Determine policy instruments and measures to
    encourage changes in IFF.
  • Discuss potential implementation barriers.

36
Step 9 Synthesize results in report
37
  • Objectives of reporting
  • Compare additional IFF between sectors, years,
    entities and sources and between adaptation and
    mitigation.
  • Provide relevant information for decision making
    at local level
  • Compare results among countries
  • Document and archive results
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