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Green Finance Mechanisms

  1. 1. Green Finance Financing Green Economy Luisa Nenci SUB-REGIONAL Training «GREEN FINANCE: Investment Tools and Policies to promote Eco-innovation, Clean Industry and Green Economy» Amman, 28 January 2014
  2. 2. Index 1 Definition(s) of: Sustainable Development, Green Growth and Green Economy 2 Financing the Green Economy: Impacts, Diagnostic, Indicators, Strategy 3 Funding: 3.1 Environmental protection: ‒ Climate Change ‒ Biodiversity 3.2 Infrastructures for: ‒ Water ‒ Energy ‒ Waste 3.3 Technologies for ‒ Eco-innovation ‒ Clean Production ‒ Energy Efficiency Conclusions 2
  3. 3. Definitions What is Sustainable Development? Green Growth? Green Economy? 3
  4. 4. Definition Sustainable Development the goal of Sustainable Development is ”to meet the needs of the present without compromising the ability of future generations to meet their own needs”. Bruntland Definition, World Commission on Environment and Development Our Common Future , 1987 Triple Bottom Line: Balanced approach to economic development, environmental protection and social well being. John Elkington founder of SustainAbility 1987 4
  5. 5. Definition Green Growth GG aims to foster economic growth and development, while ensuring that natural assets are used sustainably, and continue to provide the resources and environmental services on which the growth and well- being rely. OECD (2011), “Towards Green Growth: Monitoring Progress - OECD Indicators”, OECD, Paris GG is growth that is efficient in its use of natural resources, that it minimises pollution and environmental impacts, resilient because it accounts for natural hazards World Bank (2012), Inclusive Green Growth: The Pathway to Sustainable Development, 2012, World Bank, Washington, DC.
  6. 6. Definition Green Economy Towards a Green Economy A system of economic activities related to the production, distribution and consumption of goods and services that improve the well- being in the long term, while not exposing future generations to social risks and ecological scarcities Source: UNEP, 2011, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication,p.2 www.unep.org/greeneconomy 5
  7. 7. Impacts Human Activities 7 Source: Scott Brennan & Jay Withgott, Environment: The Science Behind the Stories, 2004
  8. 8. Impacts Planetary boundaries Source: OECD (2011) Toward Green Growth p. 30 AAVV (2009) Planetary Boundaries: Exploring the safe operating space for humanity, Ecology and Society p.9 8
  9. 9. Impacts 9 Source: UNEP, 2011, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, www.unep.org/greeneconomy
  10. 10. Impacts: Ecological Footprint and Human Development Source: The Ecological Wealth of Nations: Earth’s Biocapacity as a New Framework for International Cooperation. Global Footprint Network (2010), p. 13; Human Development Index data from Human Development Report 2009 − Overcoming Barriers: Human Mobility and Development. UNDP (2009).
  11. 11. Diagnostic Green Economy Report UNEP 2011 the transition to a green economy by 2050 is possible with the investment 2% of global annual GDP through the transformation of key sectors : - Agriculture - Manufacture - Construction - Tourism - Energy - Transport - Fishery - Water Management - Forestry - Waste Management 11 Source: UNEP, 2011, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, Financing the Green Economy Transition p.35
  12. 12. Source: OECD (2011) Tools for delivering Green Growth p.6 OECD (2011) Toward Green Growth concept based on Hausmann, Velasco and Rodrik (2008), “Growth Diagnostics” in J. Stiglitz and N. Serra, (eds), The Washington Consensus Reconsidered: Towards a New Global Governance. Diagnostic Toward Green Growth 12
  13. 13. Source: OECD framework for environmental indicators. Using the pressure- state-response model to develop indicators of sustainability Indicators Pressure-State-Response Framework
  14. 14. Indicators Pressure 14
  15. 15. 15 Indicators: State
  16. 16. Indicators : Response GG/GE indicators Source: Green Growth Knowledge Platform (2013) Moving towards a Common Approach on Green Growth Indicators p.6
  17. 17. Strategy Response: Design, reform and implement policies for green growth 17 Source: OECD (2013) What have we learned from attempts to introduce green growth policies p.7 OECD-EU Support for Improvement in Governance and Management (SIGMA)
  18. 18. Strategy: Response: Reforming Subsidies Budgetary (Government benefit) Fiscal savings More investments Form regressive to progressive expenditure Economic(Firms’ benefit) Prize liberalization Improved competition Incentives to domestic production Social(Household benefit) Increase in social assistance program Establishment/improvement in targeting mechanisms Conditional programs Source: ICTSD Tackling Perverse Subsidies in Agriculture, Fisheries and Energy OECD (2011) Outils pour la mise en place d’une croissance verte p.13
  19. 19. Strategy: Response: Reform of Energy Subsudies Source: UNEP (2008) Reforming Energy Subsidies. Opportunities to Contribute to the Climate Change Agenda p.9
  20. 20. Source: FAO (2013) Regional Initiative on Water Scarcity in the Near East Preliminary Regional Review and Gap Analysis – DRAFT p.16 Strategy: Response: Not just a Reform of Water Subsudies
  21. 21. Strategy: Response: Agriculture Reform Egypt Source: Booz & Company (2010) elaboration of Data from The World Bank, “World Development Report 2008.” and “OECD-FAO Agricultural Outlook 2009–2018,”2009.
  22. 22. Strategy Response: Taxes on pollution and other fiscal instruments Welfare Effects of Environmental Taxes in the Pigouvian Framework
  23. 23. Strategy Response: Taxes on pollution - Light Fuel Oil - Source: IMF Working paper (2012) Environmental Tax Reform: Principles from Theory and Practice to Date p.8
  24. 24. 24 Payments for ecosystem services (PES) compensate individuals or communities whose land use or other management decisions that affect resources on providing the ecosystem services for the additional costs of providing these services. Strategy Response: Payments for ecosystem services (PES) Rangelands in Jordan: Seek possible additional sources of funding for local communities for range management through: •global PES with respect to carbon capture (or “sequestration”) – either through the “Kyoto Protocol” or through voluntary, pilot markets – and other global common goods. •national PES by rationalizing assistance and payments to land users (mainly Bedouin communities) under various public programs. •considering payments part of the Climate Change agenda. IFAD Jordan National Program for Rangeland Rehabilitation and Development - Phase I
  25. 25. Strategy Response: Standards and certification on sustainable production 21 Global Eco-labelling Network International Social and Environmental Accreditation and Labeling Alliance European Eco-Management and Audit Scheme (EMAS) International Standards Organization (ISO) Environmental Management System ECO-Label
  26. 26. Source: OECD, Government at a Glance 2013: Procurement Data, OECD Meeting of Leading Practitioners on Public Procurement, GOV/PGC/ETH(2013)2, 23-Jan-2013 p.7 22 Public authorities in the EU actually spends more than 16% of EU GDP – equal to almost 1.8 billion Euros Source: European Environmental Bureau Strategy Response: Public Procurement
  27. 27. Strategy Response: Sustainable Public Procurement "A sustainable purchasing policy ... take the life cycle into account with profit, social and environmental costs ..." Procuring the Future (2006) UK Sustainable Procurement Task Force Source: UNEP Capacity Building for Sustainable Public Procurement 22 Source: Republic of Lebanon Ministry of Finance (2013) Professionalizing Public Procurement in Lebanon: Diagnostic Review and a vision forward
  28. 28. Strategy Response: Land tenure rules IFAD Land Tenure Security: Rights for natural resources utilisation: Rangeland projects may need to clarify the land-tenure system and rights to resources. • recognizing and documenting group rights to rangelands and grazing lands, forests, artisanal and fishing waters • recognizing and documenting smallholder farmers’ land and water rights in irrigation schemes • strengthening women’s secure access to land • using geographic information systems to map land and natural resource rights, use and management • identifying best practices in securing these rights through business partnerships between smallholder farmers and investors To improve access to land for the poor (especially women, minorities and other disadvantaged groups) who wish to practice agriculture. 23 Framework & Guidelines on Land Policy in Africa Source: OECD Green Growth Toolkit p.55
  29. 29. 3.1 Environmental protection: ‒Climate Change ‒Biodiversity 3.2 Infrastructures for: ‒Water ‒Energy ‒Waste 3.3 Technologies for ‒Eco-innovation ‒Cleaner Production ‒Energy Efficiency Funding 26
  30. 30. Funding Environmental Protection: EU Definition «Support to biodiversity water and energy and the fight against climate change are key areas of cooperation development, as expressed in the European Consensus on Development Sustainable management of the environment is also one of the Millennium Development Goals.» 31 Source: From Policy to Action: An outline of EU external aid for Sustainable Development
  31. 31. Environmental Protection Climate Change 32 Sources: EU (2012) European Union fast start funding for developing countries EU (2012)Supporting a Climate for Change p.35, Commissioners Piebalgs announce "Climate Change Windows“ ECDPM (2012) EU Regional Blending Facilities GCF (2013) Financial Instruments , Documents EU-Climate Change Windows GCF the new operating entity of the financial mechanism of the UNFCCC. EU-Fast Start Finance
  32. 32. 33 Climate Change Policy of the Hashemite Kingdom of Jordan launched on 14 May 2013 “Enabling Activities for the Preparation of Jordan’s Third National Communication Report to the UNFCCC (TNC)” project, “Adaptation to Climate Change to Sustain Jordan’s MDG Achievements” Project, “Water Governance Programme for the Arab States” and “Developing policy-relevant capacity for implementation of the Global Environmental Conventions (CB2)” Environmental Protection Climate Change Lebanon electricity generation mix 2010-2030 Source: EUROMED (2012) Climate change and economic growth: an inter temporal general equilibrium analysis for Egypt Egypt Impacts on Sectoral Capital Stocks 2050 Source: MOE, GEF, UNEP(2011) Lebanon Technology Needs Assessment- ClimateChange p.71
  33. 33. Environmental protection Biodiversity 38 Biodiversity through the financing of Climate Change: funded 2009/2010 with USD 70- 120 billion each year while biodiversity with only 8 billion USD. A further loss of 10% of the world's biodiversity is expected between 2010 and 2050. Source: Scaling up Finance Mechanisms For Biodiversity p.16 Source: OECD (2011) Toward Green Growth p. 21
  34. 34. 39 PES Offset of an area of ​​30 hectares: 10 hectares of cultivable field and 20 of degraded limestone grasslands. The proposal aims to restore arable field limestone and improve the condition of the existing meadow. Source: DEFRA (2012) Biodiversity Offsetting Pilots. Guidance for offset providers p.19 Environmental protection Biodiversity
  35. 35. Funding Infrastructures: Grants European Commission Mainly European Countries Agriculture, fisheries and foods Animal welfare Aquaculture CAP CFP Plant health Rural development Business Climate action Competitiveness Enterprise and Industry Free movement Internal market SMEs Energy and natural resources Climate action Energy Intelligent Energy Europe Environment, consumers and health Consumers Environment Health Maritime policy Sustainable development Employment and social rights Employment, Social Affairs and Inclusion Regions and local development EU solidarity fund Regional Development Fund Regional policy Science and technology Research 36
  36. 36. NIF promotes investment particularly in the sectors of Transport projects, Energy, Environment and Social sector. The Facility also supports the private sector, including through risk capital operations for Small and Medium Enterprises (SMEs). Funding Infrastructures: Neighbourhood Investment Facility (NIF) 41 Source: AAVV (2012) Analysis for European Neighborhood Policy (ENP) and the Russian Federation on the Social and Economic Benefits from Enhanced Environmental Protection. (2011) Regional Report: ENPI South. A Synthesis Report on Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, occupied Palestinian Territories, Syria and Tunisia. P.54
  37. 37. Infrastructures Water Monetary benefits of meeting water quality improvement targets – South ENPI countries, 2020
  38. 38. Source: UNEP (2011) Green Economy Report Synthesis p.16 Business as usual approaches will not meet demand for raw water Infrastructures Water
  39. 39. Infrastructures: Waste: Carbon Finance WB 40 Egypt, Aerobic Composting Egyptian solid waste recycling (ECARU) provides treatment and service land filling of municipal waste collected in the south of the city. ECARU processes of recyclables, composes organic biomass (food, non- recyclable paper, wood) and manages residual waste.
  40. 40. Infrastructures Energy EU financial instruments specifically support the achievement of policy objectives in the energy sector with: market-based instruments (mainly taxes, subsidies and trading system for CO2 emissions rights): 41 Source: Greenhouse gas emission allowance trading scheme Community framework for the taxation of energy products and electricity - Current minimum excise rates Petrol (€/1000 l.) 421 Unleaded petrol (€/1000 l.) 359 Diesel (€/1000 l.) 330 Kerosene (€/1000 l.) 330 LPG (€/1000 l.) 125 Natural gas (€/gigajoule) 2.6 The minimum levels of taxation applicable to motor fuels in EU
  41. 41. Infrastructures 41 Tentative typology of green growth sectoral policy objectives in Mediterranean countries: job creation and risk of irreversibility Source: FEMIPE (2012) Toward Green Growth in Mediterranean Countries P.90 ICZM = Integrated Coastal Zone Management
  42. 42. FP7 projects are at an early stage of research or development, or with a high technological risk. H2020 is the financial instrument to be implemented between 2014-2020 with a budget of just over € 70 billion Euros. This new EU program for research and innovation, combine the Framework Programs for research and Technical Development, the Competitiveness and innovation Framework Program (CIP) and the European Institute of innovation and Technology (EIT). Six main areas: 1.Depollution 2.Maritime and land highways 3.Civil protection 4. Alternative energy 5. Research 6. SMEs Development. 43 Technologies Innovation: FP7- Horizon 2020
  43. 43. Technologies Eco-Innovation: EU Source: Eco-Innovation: When business meets the environemnt •has an innovative character; •shows clear and substantial advantages for environmental policy objectives; •achieves significant environmental improvements; •provides an important replication; •demonstrates a European added value; •sounds technical at a project management perspective; • is 'cost-effective' 50
  44. 44. Source: Oxford Research (2011) EU Financing Eco-innovation p.16 45 Eco-Innovation Types & Economic Sectors
  45. 45. access to finance is a major constraint to innovation in business, which is inherently risky A venture capital market operating effectively is: -facilitating the access to debt financing (which is the main source of innovation) and issue of shares; -planning risk sharing with the private sector Eco-Innovation Funding 52 Source: The OECD Innovation Strategy
  46. 46. 47 Eco-Innovation Instrument of Financing and Financed sectors Source: Oxford Research (2011) EU Financing Eco-innovation p.56
  47. 47. Source: Oxford Research (2011) EU Financing Eco-innovation p.71 48 Eco-Innovation Incentives to finance innovative SMEs
  48. 48. EUROPEAN FUNDS focused on clean technologies such as: WHEB Ventures, Environmental Technologies Fund (ETF), Capricorn Venture Partners, Demeter Partners, Emerald Technology Ventures, Carbon Trust Investment Partners, Low Carbon Accelerator, Ludgate Investment GIMV and Set Venture Partners. ERBD Sustainable Resource Initiative favourises: efficiency and innovation and increases competitiveness in three areas: •energy, •water •materials. 49 Eco-Innovation Specialised Financing Instruments
  49. 49. Eco-Innovation Intermediary Financing Institutions: State Promotional Banks The KfW Mittelstandsbank •risks fifty-fifty with the intermediary banks. •not specifically targets eco-innovation, but innovation in general. •the share of loans to eco-innovative SMEs is very low (≈ 5%) •insolvency of new innovative companies is ≈ 30%. Source: Oxford Research, EU Financing Eco-innovation p.114 GIZ (2013) Promoting Eco Innovation p.37 ALMI, Innovation Loan (Sweden) AWS, Eco- Bonus (Austria) ERP, Capital for startups/ERP, Innovation Programme/BMU, Environmental Innovation Programme (Germany) ICO, Sustainable Economy Facility (Spain) 56 KfW Promoting green innovation and sustainable responsible entrepreneurship: the ZERO Award in Egypt and Ethiopia
  50. 50. Local investors (max 38%) in startup companies taking an advisory role without financial compensation. With co-investment funds: investment mechanism resulting from a public-private partnership for investment in start-ups. 57 Eco-Innovation Business Angels Venture Capitals Professionally managed fund with requirements of financial performance. There is not an integrated market, the regulatory framework varies greatly from one country to another. The European Union seeks to unify the venture capital market to facilitate access to finance for innovative small businesses. Source: EBAN (2009) Compendium of Co-investment for Business angels and Early stage funds in Europe
  51. 51. Technologies: Eco-Innovation 52 Eco Innovation European VC Investment on cleanear tecnologies for sector
  52. 52. Eco-Innovation Banks and other private financing Institutions utilized by SMEs to be financed Source: Oxford Research, EU Financing Eco-innovation p.42 PRIVATE CLIMATE FINANCE Tracking measurement of total private climate finance to and in developing countries 59
  53. 53. Technologies Energy Eu financial instruments are specifically supporting the achievement of policy objectives in the energy sector with the development of energy technologies for: energy efficiency, low carbon technologies and renewable energy 54
  54. 54. 55 Technologies Energy Efficiency Source: Plan Bleu (UNEP/MAP) 2011 Energy Efficiency, building and Climate Change in the Mediterranean. p.3 Investment needs for EE measures by 2030 (billion €)
  55. 55. Technologies: Technologies propres: Cleaner Energy Production Source: ERBD Cleaner Energy Production BERD Sustainable Energy Financing Facilities 56 Cleaner Energy Production Program included in the Sustainable Energy Initiative (SEI) and covers the need to strengthen economic development in carbon limited conditions of: thermal power generation and cogeneration; hydropower; transmission and distribution, including SCADA systems and smart grids; grid connected renewable energy, including wind, small hydro and biomass
  56. 56. Source: FEMIPE (2012) Toward Green Growth in Mediterranean Countries p.20 Employment potential associated with renovation of buildings in 2030
  57. 57. Summary Source: OECD (2012) A Toolkit of Policy Options to Support Inclusive Green Growth p.17
  58. 58. Summary suite
  59. 59. Conclusions Countries should continue their efforts to manage natural resources in a sustainable manner. Price instruments (pricing et al.), supplemented by regulations or subsidies have encouraged green growth. The main challenge to foster GE is to coordinate policies and to develop indicators and tools for monitoring the progress of implementation. Innovation is essential to foster green growth 64
  60. 60. ‫شكرا‬ Luisa Nenci Email lnenci@sustainvalues.net Website www.sustainvalues.net