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Transcript National Treasury

Implementation of the National Climate
Change Response White Paper:
Resource Mobilisation and Tracking
Public Hearings of the Portfolio Committee on Water and Environmental Affairs
7 June 2012
Sharlin Hemraj | National Treasury
• Introduction
• Resource mobilisation and current priority programmes
– Climate change related programmes and funding
• Overview of climate related capital projects
• Financing mechanisms:
• Green Fund
• Proposed Renewable Energy Fund
• Climate finance flows and tracking
• Concluding remarks
• The National Climate Change Response White Paper provides an
important framework to ensure climate policy coherence and affirm our
commitment to our voluntary pledge to reduce emission by 34 per cent
by 2020 and 42 per cent by 2025 subject to adequate financial,
technological and capacity building support from developed countries.
• Appropriate carbon pricing coupled with policies to support low carbon
technologies is crucial to facilitate our transition to a low carbon, climate
resilient economy.
• Currently, support is provided for climate change through funding
allocations for priority programmes on budget and via intergovernmental
fiscal transfers in line with the budgetary process and within the Medium
Term Expenditure Framework.
• To support the transition, additional financing mechanisms are under
National Climate Change Response White
Paper: Finance and Flagship Programmes
• Financing National Climate Change Response Policy and long term
funding framework for climate change:
– Mainstream climate change response into the fiscal and budgetary
process and so integrate the climate change response programmes
at national, provincial and local government and at development
finance institutions and state-owned entities.
• Near Term Priority Flagship Programmes for:
Climate Change Response Public Works
Water Conservation and Demand Management
Renewable Energy
Energy Efficiency and Demand Side Management
Waste Management
Carbon Capture and Storage
Adaptation Research
2012 MTEF allocations per sector
Water and Sanitation
Disaster Management
Climate change
Total MTEF
3 230 811
3 497 368
3 786 561
10 514 740
3 736 040
4 186 519
4 681 463
12 604 022
1 739 699
2 106 310
1 748 418
5 594 427
4 988 103
5 549 981
5 870 846
16 408 930
510 000
540 000
572 400
1 622 400
31 186
33 016
34 956
99 158
486 367
511 361
541 597
1 539 325
14 722 206 16 424 555 17 236 241
48 383 002
National Government funding (2008/09 – 2014/15)
15 314 969
20 146 061
8 464 082
36 936 119
Disaster management
2 397 400
Climate Change (policy/ co ordination)
331 558
3 161 025
86 751 214
DEA Programmes
Programme 1: Administration is allocated R776m during 2012/13 financial year.
Programme 2: Environmental Quality and Protection is allocated R346m in
2012/13, some of the funds will be used to improve air and atmospheric quality
and improve compliance with legislative timeframes in terms of the National
Environmental Management Air Quality Act and Waste Act (2008).
Programme 3: Oceans and Coasts allocated R222m for ocean and coastal
research and maintenance of the Polar research vessel
Programme 4: Climate Change with a budget of R31m for the climate change
management, mitigation and adaptation coordination.
Programme 5: Biodiversity and Conservation with a budget of R486m. This
included the renovation of accommodation and tourist facilities in the Kruger
National Parks.
Expanded Public Works Programme
Programme 6: Environmental sector Programme and Projects is allocated
R2.7bn for 2012/13 financial year (includes EPWP projects).
Main Programmes:
Working for Coast
Working for Water
Working on Fire
Natural Resource Management (NRM) is allocated R1.5bn, of which R1.1bn for
Working for Water (WfW) and R341m for Working on Fire (WoF).
– WfW: launched in 1995 aimed at removal of alien invasive species.
– WoF aims to enhance the sustainability and protection of life, livelihoods, and
ecosystem services through integrity fire management.
National Resource Management (NRM) created 12 858 full time equivalent jobs
against the target of 18 304 through EPWP projects during 2011/12 financial
NRM received an additional R230m (WfW R150m and WoF R80m) for
National Climate Change Response White Paper:
Mobilising financial resources
• Develop a climate finance strategy that contextualises and integrates
existing and emerging policy and financing instruments including the role
for market-based instruments to achieve desired economic and social
• Government will, among others,:
– Create a transitional climate finance system to support implementation of the
priority mitigation and adaptation actions.
– Partner with domestic financial institutions to fastrack and mainstream
climate resilient development.
• Recognises that public finance can support climate change through the
procurement of sustainable technologies by Government as well as
developing catalytic projects and programmes.
– International and corporate grant-providers are necessary to support the
comprehensive financing package necessary for the scale of mitigation and
adaptation interventions that South Africa needs.
Climate Change Response and
Infrastructure development
• Infrastructure development in the energy, water and transport
sectors are critical and should as far as possible be aligned with
the broader sustainable development and climate change
objectives of the country.
• Building in renewable energy capacity, shifting to natural gas and
more efficient coal based electricity generation, promotion of
energy efficiency interventions and rail capacity for passenger and
freight transport have been prioritised.
• Appropriate carbon pricing will begin to internalise the external
costs of climate change and send price signals that influence long
term investment decisions by producers and consumers.
• To enhance the effectiveness of the carbon price in the medium to
long term, these capital project initiatives could provide suitable
low carbon alternatives.
Current major infrastructure projects
Renewable Energy
Independent Power
3 725MW of renewable energy
procured into national grid by
Tender process
underway, 1415MW of
bids in first procurement
round confirmed
Ingula pump storage
scheme (Eskom)
Build 1332MW hydroelectric
power station to begin operating
in 2014
Dam constructed, pipe
installation in progress
Passenger railways
Acquire new fleet of rolling stock
over 20 years
Procurement has
Rolling stock and
locomotives for freight
Acquire rolling stock and
Procurement underway
locomotives for general freight rail
Lesotho Highlands
Water Project phase II
Generation of hydroelectric power Financing options being
and development of water
transfer scheme
Sedibeng regional
sanitation scheme
Increasing capacity of wastewater Appointment of service
treatment system
provider in progress
Renewable Energy Projects (concept, pre-feasibility,
and feasibility stages)
Grand Inga
First phase of
hydroelectricity project of
SA assessing support
Imported Hydro
Electricity Options
Hydroelectric, gas and coal
projects in Southern Africa
Options of off take
agreements and
financial support for
projects being
Solar Park (Central
Energy Fund)
Build 5GW scale solar park
in Northern Cape
Feasibility study to be
completed in 2012
Closed Cycle Gas
Construction of 2 450MW
additional gas turbines by
Option under
Integrated Resource
General Financing Options for Large,
Capital Projects
Options for financing public infrastructure include:
– Fiscal revenues: could be used to finance capital costs of infrastructure for
projects that contribute to redistribution, generate large external benefits to
society, address market failures.
– Public entities: finance infrastructure from internal reserves and debt raised
in capital markets. repayment requires that tariffs reflect the full financial
costs (capital, operating and maintenance) of providing the good or service
– Hybrid financing: of public finances and user charges or tariffs for projects
implemented by public entities. Example, water infrastructure connections for
households partly funded on budget.
– Private sector participation: public private partnerships place the risk and
responsibility for infrastructure development with the private sector, while
retaining long term public ownership.
Options exist to raise debt or equity for infrastructure through commercial banks,
capital markets, and development finance institutions.
Project development stages and financing options
Options to finance capital investments in
low carbon technologies
• Internal finance:
– Company balance sheets
– Government balance sheet
• External finance:
Debt (bank or bond issue) or equity (private or public)
Banks: Loans, project finance
Investors: Venture capital
Capital markets: equity and bond insurance
Public Private Partnerships
Global bilateral and multi-lateral funds: Strategic Climate Change
Fund, possible Green Climate Fund
Key design considerations for
environmental funding mechanisms
Expenditures should be targeted to meet environmental priorities and
promote projects with large environmental benefits relative to their costs.
Environmental Funds should :
– play a catalytic role in financing, offering no more support for projects than
is necessary and adapt to changing economic conditions.
– be used in conjunction with, and reinforce, other environmental policy
instruments, such as regulations or economic instruments.
– develop an overall financing strategy, follow clear and explicit operating
procedures for evaluating and selecting projects, and adopt effective
monitoring and evaluation practices.
– not compete with emerging financial markets but should leverage
financing from private sector enterprises and financial institutions for
environmental investments.
– ensure transparency and should be accountable to government,
parliaments and public for their actions.
Source: OECD, 1995a
Funding Mechanisms:
Green Fund and Renewable Energy Fund
• Green fund is allocated R800m (R300m in 2012/13 and R500m 2013/14).
• DBSA is responsible for implementing, operating and reporting on the
objectives of the Green Fund to the Management Committee.
• The Green Fund aims to achieve the following objectives:
a. Promoting innovative high impact green programmes and projects;
b. Strengthening institutional and technical capacity to mainstream
green and climate issues into the economy and society;
c. Reinforcing climate policy objectives through green interventions;
d. Building an evidence base for the expansion of the green economy;
e. Attracting additional resources to support South Africa’s green
economy development and climate change response.
Proposed Renewable Energy Fund
• Treasury is developing a fund that will combine fiscal, concessional and
commercial funding to provide cheaper finance and project preparation
technical assistance to RE IPPs.
• This constitutes the “financing leg” of the South African Renewables
Energy Initiative (SARI).
– Reducing the levelised cost of electricity production is most effective where
the capital costs of production are reduced, economies of scale are
generated (technology learning curves are improved), new technology
development and supply chain improvements.
– Initial launch aimed at small IPPs in second half of 2012 “small REIPP
• The National Treasury is engaging in consultations with the DBSA on the
establishment of the fund which will support the RE IPP procurement
process overseen by the Department of Energy.
Challenges for putting together climate
change funding mechanism:
Challenges for putting together climate change funding mechanism:
Donors are willing to participate, but have their own terms & conditions, policy objectives,
reporting requirements – negotiation is required
Bilateral funding is relatively small compared to multilateral sources – these require very
different approaches to access
Grant-funding is relatively small, especially compared to the large-scale funding
requirements of areas such as renewable energy
Loans and concessional finance will be the main means of accessing large-scale finance –
this requires a different set-up for both accessing and disbursing funds to that of grants –
probably more like a banking structure
Hybrid climate change funding mechanisms that can mix commercial loans, concessional
loans, bilateral donor grants, multilateral funds, equity investment and fiscal grants are at
an early stage of development globally. Hence, South Africa’s initiatives are still embryonic
and aimed at getting experience and learning best practice…these will grow into larger,
more sophisticated mechanisms capable of supporting bigger and more numerous projects
Lack of sufficient local project pipeline to match funds with to date – but this is improving
(especially with RE IPP momentum)
National Climate Change Response White Paper:
Climate finance coordination and tracking
• Immediate Transition: Government will establish an interim climate
finance co-ordination mechanism to
– secure necessary resources for mitigation and adaptation priority
– also establish a climate finance tracking facility to track the use and
impact of funds.
• Government will create a transitional tracking facility for climate
finance mechanisms and climate responses that will monitor and
coordinate existing climate finance flows.
• National Treasury will identify the initial custodian of the coordination
• Currently, Official Development Assistance flows through the
Reconstruction and Development Fund. In the case of climate finance,
some funds flow directly to line departments and other entities which
makes tracking of funds difficult.
Climate finance coordination and tracking (2)
• The National Treasury facilitated discussions between DEA and
Development Partners (DPs) on the white paper.
• Key outcomes from the discussion:
– Consistent implementation of the NCCRWP requires long term
framework for institutional coordination of mitigation and adaptation
actions and implementation, MRV of climate change actions and
efforts for further research, development and technology innovation
and promotion.
– DPs require further clarity on the implementation of flagship
programmes and DEA has agreed to engage DPs
– Consideration could be given to centralised donor coordination on
climate finance and funded projects and programmes.
• As an interim arrangement, consideration could be given to ensuring
that climate finance flows through the RDP for tracking purposes.
Concluding remarks
• To facilitate the transition to a low carbon economy, both domestic and
international support is needed.
• In the short tem, it is important that current climate related expenditure
progammes are evaluated in terms of their mitigation potential and
consideration given to upscaling or reforming these initiatives in line with
the White Paper.
• The green fund and the proposed renewable energy fund present key
funding mechanisms that could be used to support low carbon
programmes and attract possible international support.
• As an interim arrangement, the flow of climate finance could be reviewed
to ensure that funding is recorded, similar to ODA.