Financing climate change mitigation projects
This guidebook, adapted to focus on Africa, provides information for countries to better identify and access financial resources for mitigation activities. The guidebook covers both mitigation ‘projects’ (e.g. a wind farm or a solar PV facility) and ‘programs’ (such as credit for energy efficiency projects in SMEs, or bulk procurement and distribution of low energy light bulbs). The primary emphasis is on multilateral and bilateral sources of financing; but the guidebook also includes an overview of private funding sources and public private partnerships (PPPs).
The key content / findings of this guidebook is summarised below:
- There is a significant number of financing sources (multilateral, bilateral and private). This guidebook has identified over 100 sources
- These sources finance a wide range of mitigation programs and projects in developing countries worldwide. The total amount of mitigation financing in 2009-2010 was about USD 92.5 billion.
- While all these sources are designed to finance climate change mitigation programs and projects, there are differences in their specific objectives, target countries and regions, technology and sector focus, financing mechanisms used, and proposal requirements. Most financing sources address a wide range of mitigation technologies, the most common being renewable energy and energy efficiency. Some of the sources are more narrowly focused, such as on forestry.
- One of the most important financing sources is the Global Environment Facility (GEF), established in 1991 as the financing arm of the United Nations Framework Convention on Climate Change. GEF works closely with ten partner Multilateral Financial Institutions (MFIs) and provides grant financing for a large number of mitigation activities in developing countries. GEF has also established a number of special funds for mitigation.
- Many mitigation financing initiatives have been undertaken by the Multilateral Development Banks (MDBs) and UN agencies, who also act as implementing agencies for the GEF. These MFIs have also created a number of special funds for financing climate change mitigation.
- Bilateral Financial Institutions (BFIs) are also very active in mitigation financing. Some of the largest BFIs, such as JICA, KfW, and AfD have large programs for mitigation financing and work in as many as 100 countries.
- Private sources are playing an important role in mitigation financing. A large amount of private financing for mitigation activities is already being deployed as debt financing from local banks and financial institutions. Other forms of financing are becoming available, from venture capital and equity funds, pension funds, and special private funds targeted at mitigation finance.
- Many carbon funds have been created by MFIs to help monetise the GHG emission reductions from mitigation programs and projects. There are also a number of private carbon finance companies. However, the total amount of financing provided from carbon credits is small relative to the other financing sources.
- The specific proposal requirements of the financing sources vary, but in general, they require certain basic information on the proposed project or program. The general proposal requirements and the main elements of a proposal for mitigation financing are common and have been identified in this guidebook.
- This guidebook will be useful for countries interested in developing a proposal for climate change mitigation financing. It will help identify the potential financing sources and get a general idea of their characteristics and requirements. It is recommended that additional source-specific information be identified to understand the specific proposal requirements and the evaluation process and criteria that will be used to make the funding decision. It will also be useful to look at prior proposals funded by the specific source to understand how to develop some of the needed information such as definition of the baseline and risk assessment and management.