Transcript Progress and key findings

Progress and key findings –
Phase 1
February 2012
Eight tasks – three elements
Task 1: survey of current and future sources of international
climate finance
Task 2: survey of donor action in climate change in Kenya
Task 3: survey of Kenyan government action in and related
to climate change
Task 4: identifying priority spending items for the financing
mechanism
Task 5: assessment of international best practice in national
climate financing mechanisms
Task 6: Analysis of Kenyan carbon finance landscape
Task 7: Analysis of international carbon market
developments
Task 8: Analysis of Kenya’s investment climate
Design of
climate finance
mechanism
Improving
Kenya’s access
to carbon
markets
Recommendations
on low–carbon
investment climate
2
Creation of a Kenyan financing mechanism
Five key decision points:
» Should the financing mechanism be a funding entity or an
implementing entity?
» Funding decisions vs. project management.
» We recommend the latter: greater say in projects and better
access to funding.
» Should it be housed in an existing or a separate institution?
» Existing line ministry and budget: good alignment.
» We recommend the creation of a separate institution, as climate
change is a cross-cutting, inter-departmental institution.
» The relationship between this institution and the government is to
be discussed.
3
Creation of a Kenyan financing mechanism
» It will be funded initially mostly by bilateral development
partners, and later by the likes of the Green Climate Fund
and/or domestic sources.
» Flexibility.
» Co-existence with current flows and architecture.
» What should the mechanism fund?
» Analysis of NCCRS (see overleaf): $1.5 billion worth of actions
» Determination of priorities: mix of mitigation and adaptation
» Who should be the implementing agents?
» Mix of line ministries, NGOs / CSOs and the private sector.
4
Creation of a Kenyan financing mechanism
NCCRS analysis:
Structural:
dedicated
adaptation
12%
Transport
10%
Industry
0%
Energy
Demand
0%
Non-CO2
2%
Other
9%
LUC
26%
Adaptation:
40%
Mitigation:
51%
Structural:
other
22%
Development
and adaptive
capacity
38%
Structural:
water
28%
Energy
Supply
62%
5
Creation of a Kenyan financing mechanism
» Currently $2.5 billion of funds in development partner
climate change projects:
Other, 0.03%
UNDP, USAID,
0.1% 0.9%
SIDA, 1.8%
Netherlands,
0.1%
Both,
7%
World Bank,
17%
KfW, 4.5%
AFD, 46%
JICA, 1.6%
4%
GIZ,IFC,
0.3%
GEF,
1% Finland, 1%
EC, 1.5%
FAO, 0.05%
Danida, 4.4%
Adaptation,
43%
Mitigation, 49%
AfDB,
12.4%
DFID, 3.4%
6
Creation of a Kenyan financing mechanism
» Lessons from Bangladesh and Indonesia:
» Development partner involvement will likely be necessary but
should be limited.
» Grant financing has predominated in national funds established
to date.
» The fund needs to be developed in conjunction with the climate
change action plan.
» Decision-making needs to be as transparent as possible and
with ‘whistle-blowing facilities’ easily available.
7
Carbon trading platform
» Good performance by Kenya.
»
»
»
»
»
As of end-2012, 5 registered projects and 21 in pipeline
Relative to emissions, top performer in Africa.
$1.5 billion worth of investment by 2020.
Efficient Designated National Authority
Capable project developers.
» BUT...EU legislation on post-2012 registered, non-LDC
credits is a threat. The EU accounts for 80% of demand.
Kenya should lobby the EU for a bilateral deal, perhaps with
other African countries.
8
Carbon trading platform
» Another negative factor is the unfavourable supply vs.
demand balance...
» ...as is the low availability of early stage finance and
poor understanding of CDM.
» Kenya should also focus on:
» Premium CDM credits with substantial co-benefits
» Forestry and premium credits in the voluntary market
» Bilateral schemes, e.g. Japan’s Bilateral Offset Credit Scheme
9
Carbon trading platform
» The above recommendations favour the creation of a
‘secondary carbon trading platform’:
»
»
»
»
One-stop-information-shop on the CDM
Guidance on methodologies and emissions factors
Guidance on finance
In time, matching of developers and buyers
» This is likely to be more successful than a ‘primary
platform’ of exchange and purchase
» Lack of proximity to demand
» Insufficient liquidity
10
Carbon trading platform
» Lessons from other countries that have gained access
to carbon markets:
» Identify, and create a coherent policy framework for, the
sectors of the economy and types of project that the
government is most keen to see access international carbon
market finance.
» Increase knowledge of the CDM and carbon markets.
» Further improve the efficiency of the DNA.
» Continue to promote both public and private sector, as well as
both local and international, participation.
» Consider ways in which the financing of emissions reductions
activities might be improved.
11
Investment climate for climate investment
» There is much that is positive, especially in renewable energy sectors:
» Unbundling of generation and transmission has created a market for
independent power producers.
» KPLC , Geothermal Development Corporation and feed-in tariffs work relatively
well.
» Two areas of contention: regulation and finance.
» Regulatory issues:
Feed-in tariff is low and acts as a ceiling.
Regulatory process with KPLC can be long and onerous.
Lack of one-stop-shop.
Doubt over the bankability of power purchase agreements and lack of
sovereign guarantees.
» MIGA.
» Tax and duty exemptions and subsidies.
»
»
»
»
12
Investment climate for climate investment
» Finance issues:
» Difficulty of acquiring finance at long tenor, low interest and low
collateral.
» Little project finance.
» Causes: poor understanding of climate investment and start-up
needs; risk averseness; other.
» Initial solutions: concessional finance to banks; early stage
investment fund; capacity building to banks and firms.
» International perspective:
» Poor communication with government on priorities.
» Cooperate with IFIs on incentives, e.g. MIGA and CMCI
13