INTRODUCTION TO THE UNDP APPROACH FOR ASSESSING INVESTMENT AND FINANCIAL FLOWS TO ADDRESS CLIMATE CHANGE Presented by Bill Dougherty, Stockholm Environment Institute, USA at the Namibia National Climate Change Awareness Raising Workshop Safari Hotel, Windhoek, Namibia 24 September 2008

UNDP Method packaged in User’s Guidebook CONTENTS  PART I (Getting Started)  Overview of what is needed to start assessment  Explanation of key concepts  Overview of whole process  PART II (Conducting the Assessment)  General methodology  Mitigation and adaptation assessments in priority sectors  Follow-up to assessment, linking to policy processes  PART III: (Resources for assessments)  Case studies, references, glossary

UNDP Assessment Methodology decision tree

Methodology - Mitigation

Methodology - Adaptation

How to use the User’s Guidebook (UG) How can an I&FF assessment be undertaken in my country?”  The UG is a starting point to guide the national teams through both mitigation and adaptation I&FF assessments  The UG includes an overall methodology while focusing on supporting analysis for specific sectors, e.g. energy (mitigation) and LULCF (adaptation)  Can be used flexibly according to country’s needs resources, and modeling capability  “Checklists” throughout sectoral methodologies to help ensure team is on track

Role of National Assessment Teams  Government coordination across ministries, sectors, other stakeholders is key part of successful assessment  Team coordinates systematic data and information generation and collection activities  UNDP technical backstopping available to support national assessment team  Use participatory mechanisms to disseminate climate change demands and opportunities; ensures these are inputs to I&FF assessment

Q&A CLARIFICATIONS Namibia National Climate Change Awareness Raising Workshop Safari Hotel, Windhoek, Namibia, September 2008

UNDP APPROACH FOR ASSESSING INVESTMENT & FINANCIAL FLOWS FOR CLIMATE CHANGE : THE USER’S GUIDEBOOK Special sessions for national experts undertaking investment & financial flows assessments to address climate change Presented by Bill Dougherty, Stockholm Environment Institute, USA at the Namibia National Climate Change Awareness Raising Workshop Safari Hotel, Windhoek, Namibia 25 September 2008

Today’s agenda 1. Investment and Financial Flows – Key concepts 2. UNDP Investment and Financial Flows Methodology 3. Overview of Investment & Financial Flows Assessment Approach for Mitigation, focusing on the energy sector 4. Overview of Investment & Financial Flows Assessment Approach for Adaptation, focusing on the LULUCF sector

UNDP Method packaged in User’s Guidebook CONTENTS:  PART I  Overview of what is needed to start assessment  Explanation of key concepts  Overview of whole process  PART II  Scoping issues  Key steps in mitigation and adaptation assessments  Follow-up to assessment, and linking to national policy processes  PART III: Resources for assessments

AGENDA 1. Investment and Financial Flows – Key concepts 2. UNDP Investment and Financial Flows Methodology 3. Overview of Investment & Financial Flows Assessment Approach for Mitigation, focusing on the energy sector 4. Overview of Investment & Financial Flows Assessment Approach for Adaptation, focusing on the LULUCF sector

Key Concepts  What are I&F flows?  Goals and Objectives  Intended outputs and outcomes

Investment Flows  Investment flows (I) include investments in new facilities or equipment e.g. renewable energy sources, expanded water supply systems, capital cost of a gas-fired generating unit  Represents the initial (capital) cost of a new physical asset with a life of more than one year  Focus is on investment decisions, new physical assets, but ignore operating costs. For any given measure within a sector the investment or financial flows are estimated- but not both.

Financial Flows  Financial flows (F) include on-going expenditures e.g. forest management or illness treatment  Represents the ongoing cost related to mitigation or adaptation that does not involve physical assets  Expenditures incurred by national agencies to maintain the new investments for achieving mitigation and adaptation goals  Most useful for assessment in sectors that do not involve investment in new facilities or equipment

UG Goals  Better understand future I&FF that simultaneously address climate change and fit within the development priorities of a country for a specific sector  Provide guidance on how to conduct the actual assessment of investment and financial flows while being a flexible process that national teams can use to better understand the investment and financial implications of national climate change mitigation and adaptation strategies

UG Objectives 1. Estimate existing sector level I&FF (including in context over national I&FF) and, if possible, estimate current level I&F flows for climate change related activities. 2. Estimate the additional estimated amount of I&FF needed in the future to adequately address mitigation and adaptation in a specific sector. 3. Increase sectoral level understanding regarding strategic choices for mitigation and adaptation. 4. Evaluate the role that different sources of financing can play in shifting investment flows. 5. Improve public awareness about climate change implications for national development.

UG Intended outputs and outcomes 1. A synthesis of information on current I&FF for a sector 2. Projection of I&FF by major sectors in the absence of efforts to address mitigation and adaptation needs by some future year 3. Projection of I&FF by major sectors to address mitigation and adaptation needs by some future year; 4. An analysis of the potential role and sources of investment and financing and their potential relation to national circumstances 5. An identification of the set of mitigation and adaptation policy priorities aligned with the I&FF analysis; 6. A summary report that integrates all aspects of the assessment in a readily accessible and transparent manner.

Q&A CLARIFICATIONS Namibia National Climate Change Awareness Raising Workshop Safari Hotel, Windhoek, Namibia, September 2008

AGENDA 1. Investment and Financial Flows – Key concepts 2. UNDP Investment and Financial Flows Methodology 3. Overview of Investment & Financial Flows Assessment Approach for Mitigation, focusing on the energy sector 4. Overview of Investment & Financial Flows Assessment Approach for Adaptation, focusing on the LULUCF sector

Key Elements of I&FF Method 1. Identification and collection of pertinent national information 2. Assessing data sources, availability, quality and access 3. Defining methodological boundaries for the assessment 4. Defining mitigation and adaptation scenarios 5. Identifying and applying appropriate modeling tools

Pre-requisites  Identify project team, assign roles and responsibilities  Defined roles and responsibilities of different institutions  Clear understanding of assessment methodology  Define scope of each sector included in the investment and financial flows analysis  Identifying and applying appropriate modeling tools  Selection of a suitable model, if one is available. If not, adopt a plan or projection for the sector.  Development of the necessary scenarios

Sector selection and scope definition  Is there adaptation/ mitigation options assessed in national communications or other reports?  Where specific models used for adaptation / mitigation options selection? For which time frame?  What problems with data collection on adaptation/mitigation assessments were encountered?  What are the available sources of information on domestic sources of I&F for the sector? On international I&F?

Choosing models, defining scenarios  Models  computable general equilibrium (CGE)  Macroeconomic and microeconomic  Scenarios  “Reference Scenario”: absent major new investments to address climate change in developing countries  “Mitigation Scenario”: GHG emissions are decreasing relative to population and economic output  “Adaptation Scenario”: resilience to adverse physical impacts of climate change is created and reinforced (Selection of a suitable scenario, if one is available from national communications of NAPA. If not, adopt a plan or projection for the sector and develop the necessary scenarios)

Flexibility of UG methodology- depends on national data and model availability

Q&A CLARIFICATIONS Namibia National Climate Change Awareness Raising Workshop Safari Hotel, Windhoek, Namibia, September 2008

AGENDA 1. Investment and Financial Flows – Key concepts 2. UNDP Investment and Financial Flows Methodology 3. Overview of Investment & Financial Flows Assessment Approach for Mitigation, focusing on the energy sector 4. Overview of Investment & Financial Flows Assessment Approach for Adaptation, focusing on the LULUCF sector

User Guidebook Section 5 Key steps in mitigation assessment for the energy sector

Key Steps: Mitigation  Step 1: Scope out the effort  Step 2: Establish Reference Scenario  Step 3: Establish Mitigation Scenario  Approach #1: example - assume an end point for energy supply emissions  Approach #2: example - assume a set of technologies for energy supply  Step 4: Estimate incremental investment flows  Step 5: Synthesize results

Example: Energy Sector - Step 1  Step 1: Scope out the effort  Define scope of the sector  Specify time horizon for the assessment  Select a suitable model for the sector where possible

Example: Energy Sector - Step 1  Scope of the sector  Boundaries for the assessment (e.g., subsectors, reporting outputs, GHG reductions, etc)  National accounts data available  Government plans/policies  Time horizon: 2030 typically  Modeling: several options available

Example: Energy Sector - Step 1  Checklist for Step 1  Identified a suitably configured project team with the requisite range of skills and experience?  Defined key subsectors and boundaries for the assessment?  Established a plan for identifying and engaging key stakeholders?  Determined project objectives and desired outcomes?  Decided whether to develop a plan for communicating results to national and international decision makers?  Identified national and/or international sources for pertinent national accounts data?  Identified national sources for pertinent sector expansion plans?

Example: Energy Sector - Step 2  Step 2: Establish the Reference Scenario  Define the physical basis  Estimate current investment costs  Project future investments

Example: Energy Sector - Step 2  Define the physical basis  Establish (or develop) the national schedule of new capacity additions to meet future energy demand

Example: Energy Sector - Step 2  Estimate current investment costs  Assemble national accounts data for a minimum 10-year period prior to and including the Base Year (or longer data quality permitting) of the assessment in as great a level of detail as possible  Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Energy Sector - Step 2  Project future investments  Estimate annual investment costs associated with the new capacity plan  Compute the total investment cost in real, unannualized terms over the planning period.  Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Energy Sector - Step 2  Checklist for Step 2  Established (or developed) the national schedule of new capacity additions to meet future energy demand  Estimated annual investment costs associated with the new capacity plan  Computed the total investment cost in real, unannualized terms over the planning period.  Developed a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Energy Sector – Step 3  Step 3 : Establish the Mitigation Scenario  Define physical basis  Project future investments

Example: Energy Sector - Step 3  Define the physical basis  Identify the renewable resource potential for a variety of sources.  Characterize the demand-side energy efficiency potential for new high efficiency equipment.  Identify changes needed to create an enabling environment for investments in carbon-reducing technologies  Develop a cost & performance database for all potential carbon-reducing technologies

Example: Energy Sector - Step 3  Define the physical basis (continued)  Establish (or develop) the national schedule of new capacity additions to meet future energy demand

Example: Energy Sector - Step 3  Project future investments  Estimate annual investment costs associated with the new capacity plan  Compute the total investment cost in real, unannualized terms over the planning period.  Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Energy Sector - Step 3  Checklist for Step 3  Identified renewable resource potential for variety of sources.  Characterized demand-side energy efficiency potential  Identified changes needed to create an enabling environment for investments in carbon-reducing technologies  Developed a cost & performance database for all potential carbon-reducing technologies  Established (or developed) an alternative national schedule of new capacity additions to meet future energy demand  Estimated annual investment costs of alternative capacity plan  Computed total investment cost in real, unannualized terms  Developed breakdown of investments into major categories

Example: Energy Sector – Step 4  Step 4: Estimate incremental investment flows  Compare projected investment and financial flows for the Reference and Mitigation Scenarios.

Example: Energy Sector – Step 4

Example: Energy Sector – Step 5  Step 5: Synthesize results  Summarize investment and financial flows for the sector  Assess policy options  Prepare report

Working Group Discussions  Data sources and gaps  Issues related to sector-specific scenarios and models  Nationally appropriate approaches to conducting an I&F assessment for the energy sector Report Back after ~60 minutes

AGENDA 1. Investment and Financial Flows – Key concepts 2. UNDP Investment and Financial Flows Methodology 3. Overview of Investment & Financial Flows Assessment Approach for Mitigation, focusing on the energy sector 4. Overview of Investment & Financial Flows Assessment Approach for Adaptation, focusing on the LULUCF sector

User Guidebook Section 6 Key steps in adaptation assessment for LULUCF sector

Key Steps: Adaptation  Step 1: Scope out the effort  Step 2: Establish Reference Scenario  Step 3: Establish Adaptation Scenario  Step 4: Estimate incremental investment flows  Step 5: Synthesize results

Example: Forestry Sector - Step 1  Step 1: Scope out the effort  Define scope of the sector  Specify time horizon for the assessment  Select a suitable model for the sector where possible

Example: Forestry Sector - Step 1  Scope of the sector  Boundaries for the assessment (e.g., managed forests, unmanaged forests)  National accounts data available  Government plans/policies  Time horizon: 2030 typically but preferable to 2050  Modeling: several forest management options available

Example: Forestry Sector - Step 1  Checklist for Step 1  Identified a suitably configured project team with the requisite range of skills and experience?  Defined key subsectors and boundaries for the assessment?  Established a plan for identifying and engaging key stakeholders?  Determined project objectives and desired outcomes?  Decided whether to develop a plan for communicating results to national and international decision makers?  Identified national and/or international sources for pertinent national accounts data?  Identified national sources for pertinent forestry management plans?

Example: Forestry Sector - Step 2  Step 2: Establish the Reference Scenario  Define the physical basis  Estimate current investment costs  Project future investments

Example: Forestry Sector - Step 2  Define the physical basis  Establish (or develop) the national schedule of new forestry infrastructure improvements

Example: Forestry Sector - Step 2  Estimate current investment costs  Assemble national accounts data for a minimum 10-year period prior to and including the Base Year (or longer data quality permitting) of the assessment in as great a level of detail as possible  Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Forestry Sector - Step 2  Project future investments  Estimate annual investment costs associated with the new capacity plan  Compute the total investment cost in real, unannualized terms over the planning period.  Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Forestry Sector - Step 2  Checklist for Step 2  Established (or developed) the national schedule of new forest resources to meet future demand for forest products  Estimated annual investment costs associated with the new plan  Computed the total investment cost in real, unannualized terms over the planning period.  Developed a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Forestry Sector – Step 3  Step 3 : Establish the Mitigation Scenario  Define physical basis  Project future investments

Example: Forestry Sector - Step 3  Define the physical basis  Identify the range of adaptation strategies for the forestry sector  Characterize the expected performance of forestry adaptation options relative to local climate change projections  Identify changes needed to create an enabling environment for adaptation investments in forestry sector  Develop a cost & performance database for all potential forestry adaptation options, technologies, and practices

Example: Forestry Sector - Step 3  Define the physical basis (continued)  Establish (or develop) the schedule of new forestry infrastructure improvements

Example: Forestry Sector - Step 3  Project future investments  Estimate annual investment costs associated with the new capacity plan  Compute the total investment cost in real, unannualized terms over the planning period.  Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Forestry Sector - Step 3  Checklist for Step 3  Identified set of alternative tree species/resources  Characterized potential for new forest management/protection  Identified changes needed to create an enabling environment for investments in sustainable forest management  Developed database for forest adaptation options  Established alternative schedule of new practices, technologies, and/or tree species to meet future demand for forest products  Estimated annual investment costs of alternative plan  Computed total investment cost in real, unannualized terms  Developed breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Forestry Sector – Step 4  Step 4: Estimate incremental investment flows  Compare projected investment and financial flows for the Reference and Mitigation Scenarios.

Example: Forestry Sector – Step 4

Example: Forestry Sector – Step 5  Step 5: Synthesize results  Summarize investment and financial flows for the sector  Assess policy options  Prepare report

Working Group Discussions  Data sources and gaps  Issues related to sector-specific scenarios and models  Nationally appropriate approaches to conducting an I&F assessment for the energy sector Report Back after ~60 minutes

PLENARY DISCUSSION: Institutional collaboration Workplan and timeline