The amount of development assistance available for clean energy, sustainable landscapes, and climate adaptation investment is relatively small. Partner governments have multiple urgent and competing needs for public expenditures, recently exacerbated by the global pandemic and recession. Increasing investments in climate change mitigation and adaptation will require greater private sector engagement, increased access to international and domestic capital markets, and new sources of financing from institutional and impact investors. Development assistance organizations can play a major role in leveraging private sector financing by adopting new approaches with greater impact potential.
On August 12, 2020, Climatelinks and the USAID-funded Climate Economic Analysis for Development, Investment, and Resilience (CEADIR) Activity co-sponsored a well-attended, 90-minute webinar on CEADIR’s Climate Finance Assessment. The webinar addressed options for improving enabling environments, strengthening information and capacity, and creating or strengthening financing mechanisms and instruments. It explored the advantages and disadvantages and lessons learned from examples of the various options. The presentation that accompanied the webinar is available for download on Climatelinks.
Pablo Torres (Crown Agents USA) gave introductory remarks and moderated the webinar. The featured speakers brought expertise in investment options for reducing emissions from deforestation and forest degradation (REDD+) and clean energy (Dr. Eric Hyman, USAID), sustainable landscapes (Dr. Glen Anderson, Winrock International), and climate adaptation (Charlotte Mack-Heller, Resonance Global).
The question-and-answer segment brought out a few examples that were not directly mentioned in the report or presentation:
How can we avoid locking in investments in high-cost technologies for climate mitigation and adaptation?
Dr. Hyman: Within mitigation, there are some expensive carbon capture technologies still in the research and development and pilot stages. However, utility-scale renewable energy already costs less than unsubsidized fossil fuel generation in most countries. Many sustainable landscape investments can also be cost-effective and have co-benefits for long-term productivity. Economists have developed marginal abatement cost curve analyses to compare the costs and mitigation potential of alternatives.
A series of World Bank studies found that the costs of climate adaptation are relatively low, often adding less than 2 percent to the construction costs for new infrastructure. Adaptation costs are higher for retrofitting infrastructure, but generally much lower than the costs of damage from extreme weather events.
How can sustainable landscapes financing reach the local level in developing countries?
Dr. Anderson: It’s important to understand the decision-making processes of farmers and small-scale producers who depend on natural resources for livelihoods. They often lack land tenure or natural resource use rights as well as access to affordable loans and technical assistance. Cooperatives, farmer associations, and community-based organizations can be effective intermediaries for these populations.
Dr. Hyman: The trend toward jurisdictional-level REDD+ has raised concerns in some countries where national governments have proposed to keep as much as 50 percent of the benefits of carbon credit payments to cover their own costs of program administration and measurement, reporting, and verification.
Only 7 percent of climate finance has gone to adaptation. How can that change?
Ms. Mack-Heller: Adaptation has received insufficient attention despite large potential benefits, often due to uncertainty about the timing of benefits and insufficient understanding of climate risks and the costs and benefits of adaptation measures. Most developing countries are not even prepared for common weather risks, such as floods and droughts, that may occur at an average frequency of five years.
What will be the effects of COVID-19 on climate financing?
Dr. Hyman: It is still too early to know the medium-term and long-term effects of COVID-19 on climate finance. Although some have suggested that COVID-19 represents an opportunity for a green recovery, it is unlikely that green investments will be a priority for the hard-hit private sectors in both developed and developing countries.
Recession and recovery costs will impose enormous financial stress on most governments that may last for years. Some advocacy groups and governments in Western Europe have discussed “growing back greener,” but it remains to be seen what will materialize. CORSIA, the civil aviation industry’s future cap-and-trade system for carbon offsets, may face delays.
Dr. Anderson: The pandemic has devastated key value chains in developing countries, including coffee and high-value fisheries. As a result, some developing country governments have had to reschedule loan repayments and provide tax relief or subsidies.
Ms. Mack-Heller: While realities are harsh, changes in transportation during pandemic make me more optimistic about the potential for governments to explore low-emission development strategies and partnerships for economic recovery.
For more information:
- “Nature-based solutions for adapting to water-related climate risks” OECD, July 2020
- “Gender, Climate and Security” UNDP, June 2020
- “How the World Bank is looking at COVID-19 and public-private partnerships, right now and post-crisis,” World Bank, June 2020
- “Risk, resilience, and rebalancing in global value chains,” McKinsey Global Institute, August 2020
- “Assessment of investment funds supporting tropical forest areas and communities,” ISF Advisors, July 2020
- “Pathways to Prosperity: Rural and Agricultural Finance,” ISF Advisors, November 2019
- “Protecting Growing Prosperity: Agricultural Insurance in the Developing World,” ISF Advisors, September 2018
- “Africa Energy Yearbook 20/21,” Africa Energy Forum, 2020.
- “Investor Guide to Deforestation and Climate Change,” Ceres, June 2020.
- “Powering Good for a Sustainable Energy Future,” Green Tech Media, July 2020
Dr. Eric Hyman
Dr. Eric Hyman is an Economist in the USAID Economic Growth, Education, and Environment Bureau’s Economic Policy Office. Dr. Hyman was previously Economist and Environmental Officer at the U.S. African Development Foundation and Chief of Program Evaluation at EnterpriseWorks Worldwide/Appropriate Technology International. He has a Ph.D and M.R.P in Environmental Planning from the University of North Carolina at Chapel Hill, and a B.A. in Economics and Environmental Science from the University of Virginia.