Implementing the national low-emissions strategies under development in many developing countries will require governments to think more strategically about how to finance the changes. CDKN’s Carolyn Fry interviews Amal-Lee Amin of E3G, who is advising Latin American governments on financing opportunities.

Many developing nations are exploring ways in which they can make the transition to carbon-efficient and climate resilient economies. However, relatively few countries are giving detailed thought as to how to put in place the financing structures needed to deliver the desired changes. Taking a strategic approach to identifying and implementing a national financing pathway can be beneficial, as it can ensure public finance is used in the most effective way to mobilise private-sector investment. It also provides a conduit through which sources of international climate finance can be channelled.

Earlier this year, CDKN funded a scoping study by non-profit organisation E3G to explore how Chile, Peru and Colombia are thinking about financing their Low Emissions Development Strategies (LEDS). The aim was to see what stage each country was at with its LEDS planning, to investigate how each nation is considering finance for its LEDS priorities, to engage national champions who would help promote the concept of a national finance strategy, and to identify steps to bring such strategies to fruition.

“The concept came out of discussions at the LEDS Global Partnership last year,” explains Amal-Lee Amin, Associate Director of E3G. “We were talking about where Chile, Peru and Colombia were at with implementing their emissions-reduction plans and it became apparent that they were only just beginning to consider financing. ”It seemed likely that the governments would require a bespoke approach for climate finance, based on their nation’s circumstances, institutional frameworks and capacity, and the maturity of their private sectors and financial markets. At the same time, some common issues were likely to emerge, presenting the opportunity for the countries to share lessons on how to tackle the financing issue.”

Chile, Peru and Colombia are using the Mitigation Action Plans and Scenarios (MAPS) approach to developing their LEDS. This approach is built around a certain interaction between stakeholder-driven processes and research. Chile has called its process MAPS Chile; Peru’s is named Planning for Climate Change (Plan CC); and Colombia’s MAPS process is known as the Colombia Low Carbon Development Strategy (CLCDS). The results of E3G’s scoping mission show that each country has taken a unique perspective on how to finance its MAPS strategy.

Chile has focused strongly on mobilising the private sector. It has put in place a dedicated office in the Ministry of Finance, and is starting to allocate its own resources to identify costs of implementation. Colombia has developed strong institutional arrangements inside government. Here, the Minister of Planning chairs the national climate change committee and the ministry has set up a finance committee as an important first step. The focus is now on developing sector-focused plans that can be financed and provide a basis for engaging the private sector.

Peru is still at the technical analysis stage of its MAPS process and its institutional capacity is still developing. However, its ministry of economy is active in key areas, and is talking with the private sector early on. All three countries are exploring how best to involve their national development banks. This could include introducing green funds, which could help channel international resources. LEDS priorities for the next two decades include: mobilising an additional US$10trillion in energy investment aimed at limiting global temperature rise to 2°C; shifting US$26trillion from high- to low-carbon energy investment; making US$145trillion of investments in infrastructure low carbon, resource efficient and resilient to climate shifts; and doubling the rate of global technology diffusion.

Dr Amin believes that countries such as Chile, Peru and Colombia can lead the way by identifying national financing pathways that could deliver such a development paradigm shift. “Immediate to short-term actions to build on what the countries have already achieved could involve using international funding available now for Nationally Appropriate Mitigation Actions (NAMAs) or funding from the Green Climate Fund next year,” she says. “These could be used to pilot and demonstrate the feasibility of transformational investments, so these can be scaled-up through national budget processes in future.”

“In the medium term, the countries will need to integrate low-carbon development priorities into sector investment plans. Chile is already starting to do this within its energy sector, and Colombia is in the process of designing sectoral plans that can be financed. The governments will need to consider how domestic budgets can be allocated best for implementing MAPS strategies, and how international finance could catalyse additional resources to go beyond what might be achievable otherwise. Longer term financing goals should be to mobilise the capital from institutional investors into low-carbon and resilient investments.”

The scoping project team has identified ‘champions’ in the three countries, who it hopes will promote the concept of a national financing strategy. These champions realise the importance of getting ministries of finance and economy leading on the process, while ensuring collaboration with ministries of environment and sector ministries to identify financing opportunities and budget requirements.

“These champions understand the need for a government-led vision of what mitigation and adaptation actions are desirable in their particular country context and the importance of a leadership role to identify viable financing pathways,” confirms Dr Amin. “As the governments identify implications for their national budgets, so they can plan ahead better and identify the best use of international climate finance. They will be able to ensure they don’t over subsidise one sector to the point where the private sector can’t participate, and that they prioritise very scarce public resources for those sectors where there is a very real need.”

A key finding from the project is that there is no cookie-cutter approach; every country needs a bespoke plan for financing its climate objectives. E3G has now published a working paper on National Financing Pathways. This sets out emerging findings of the scoping mission; a more detailed report will be published early next year. “By the end of the scoping project, we’ll have mapped out each country’s institutional arrangements and identified sources of finance for climate-related investments,” says Dr Amin. “We hope that subsequent phases of work will focus on designing specific policy and financing measures that can leverage maximum resources from public and private sectors. This would provide valuable lessons on how to increase the catalytic impact of international climate finance,  including the role of the Green Climate Fund.”