Financial Engineering of Climate Investment in Developing Countries

Søren E. Lütken

Description

This book gives the first no-nonsense, hands-on account of the financing principles and perspectives for Nationally Appropriate Mitigation Actions against climate change.

This book gives the first no-nonsense, hands-on account of the financing principles and perspectives for Nationally Appropriate Mitigation Actions (NAMAs), the new kid on the block in the battle against climate change. NAMAs are finding their own identity, and most importantly, finding a new financial basis without relying on a carbon market and carbon credit. While the NAMA model may be the right instrument at the right time, it is spawned from the climate change negotiation sphere that continues to suffer from its lack of interaction with the other spheres involved in its actual deployment. Despite 20 years of negotiations, a barrier remains between concept and action. The disconnect is first and foremost between the political sphere and the private-sector sphere, and is particularly rooted in the understanding – or misunderstanding – of finance. This book bridges the gap by addressing policymaking and private sector financing in one volume. It disarms myths, hides nothing behind political correctness and applies a good measure of common sense to advance guidance for the financing of actions that will allow developing countries, having become the prime source of greenhouse gas emissions, to contribute to the global battle against climate change.

List of Figures and Tables; List of Abbreviations; Foreword; Preface; Chapter 1 Introduction; Part I What Is; Chapter 2 Climate Change and Nationally Appropriate Mitigation Action; Chapter 3 Learning from the CDM; Chapter 4 Defining NAMA Finance; Chapter 5 The Financing Tools . . .; Chapter 6 . . . And the Financiers; Chapter 7 Engineering and Leveraging the Finance; Part II What Ought to Be; Chapter 8 Challenges to NAMA Finance – Mandates, Aggregation and Lack of Instruments; Chapter 9 Roles of the Green Climate Fund; Chapter 10 Conclusion; Notes; References; Index

Informations

• Publié par: Anthem Press
• Date de parution: 01 juin 2014
• Nombre de lectures: 0
• EAN13: 9781783080229
• Langue: English
• Poids de l'ouvrage: 3 Mo

Extrait

Financial Engineering of Climate Investment in Developing Countries

ANTHEM ENVIRONMENT AND SUSTAINABILITY

General Editor:Lawrence Susskind – Massachusetts Institute of Technology (MIT), USA Our Environment and Sustainability book publishing program seeks to push the frontiers of scholarship while simultaneously offering prescriptive and programmatic advice to policymakers and practitioners around the world. We have launched this initiative with the series below (each of which has an excellent editorial board featuring scholars, practitioners and business experts eager to link theory and practice), and will continue it with research monographs, professional and major reference works, upperlevel textbooks and general interest titles.

Another related project to the Anthem Environment and Sustainability program is Anthem EnviroExperts Review. Through this online microreviews site, Anthem Press seeks to build a community of practice involving scientists, policy analysts and activists that is committed to creating a clearer and deeper understanding of how ecological systems – at every level – operate, and how they have been damaged by unsustainable development. We seek to publish on this site short reviews of all important books or reports in the environmental field, broadly defined. For more information, visit www.anthemenviroexperts.com.

Related Series

Anthem Advances in Atmospheric Environment Science Deepening our understanding of atmospheric sciences and the social and political implications of regulatory efforts that build on them. Series Editors: Peter Brimblecombe – University of East Anglia, UK and Ranjeet S. Sokhi – University of Hertfordshire, UK

Anthem Ecosystem Services and Restoration Series Understanding ecosystem services and harnessing market forces to drive conservation and restoration. Series Editor: Lawrence Susskind – MIT, USA

Anthem New Energy Finance Encouraging productive public and private investments in a lowcarbon future. Series Editor: Nicholas Howarth – The Smith School of Enterprise and the Environment, University of Oxford, UK

Anthem Series on International Environmental Policy and Agreements Building a prescriptive environmental policymaking agenda based on sound analysis and empirical insights. Series Editor: Saleem H. Ali – University of Queensland, Australia

Anthem Sustainability and Risk Series Improving our ability to promote sustainable development in the context of increasing complexity, uncertainty and risk. Series Editor: David A. Wirth – Boston College Law School, USA

Anthem Sustainability Science Documenting our ability to promote sustainability development. Series Editor: William Moomaw – Tufts University, USA

Anthem Water Diplomacy Series Enhancing our understanding of better ways to facilitate the management of shared water resources at international and national levels. Series Editor: Shafiqul Islam – Tufts University, USA

Financial Engineering of Climate Investment in Developing Countries

Nationally Appropriate Mitigation Action and How to Finance It

Søren E. Lütken

Anthem Press An imprint of Wimbledon Publishing Company www.anthempress.com

This edition first published in UK and USA 2014 by ANTHEM PRESS 75–76 Blackfriars Road, London SE1 8HA, UK or PO Box 9779, London SW19 7ZG, UK and 244 Madison Ave #116, New York, NY 10016, USA

Copyright © 2014 Søren E. Lütken

The author asserts the moral right to be identified as the author of this work.

All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.

British Library CataloguinginPublication Data A catalogue record for this book is available from the British Library.

Library of Congress CataloginginPublication Data A catalog record for this book has been requested.

ISBN13: 978 1 78308 018 2 (Hbk) ISBN10: 1 78308 018 3 (Hbk)

Cover photo: Gabriela Insuratelu/Shutterstock.com

This title is also available as an ebook.

List of Figures and Tables List of Abbreviations Foreword Preface

C

Chapter 1 Introduction

Part I What Is

O

N

TEN

TS

Chapter 2 Climate Change and Nationally Appropriate Mitigation Action  The Identity of a NAMA  PoAs and NAMAs  Defining Appropriateness  The Substance of NAMAs  Summing Up

Chapter 3 Learning from the CDM  The CDM Experience  It’s a market – live with it  Thriving on domestic finance  Small is beautiful …  Costinefficient emissions reduction  Additionality revisited  Reverse engineering the CDM  Summing Up

Chapter 4 Defining NAMA Finance  Government Investment Motives  Private Investment Motives  Summing Up

ix xi xiii xv

1

9 10 15 16 20 24

25 26 28 29 30 31 33 34 37

39 44 46 48

vi

FINANCIAL ENGINEERING OF CLIMATE INVESTMENT

Chapter 5 The Financing Tools . . .  Public Sector Sourcing Instruments  Environmental Fiscal Reform  Nondomestic sources  Public Sector Operational Instruments  Grants  Taxes  Loans and guarantees  What happened to the carbon credit?  Summing Up

Chapter 6 . . . And the Financiers  The Intitutional Investor  The Insurance Companies  Hybrid Sources of Financing  The philanthropic foundation trustees  The Banks  Multilateral development banks  National development banks  Green Bonds  Blending  Summing Up

Chapter 7 Engineering and Leveraging the Finance  Transformation  Leveraging Finance from Different Sources  The ‘who goes first’ dilemma  Additional domestic public funding  Approaching international financiers  Engaging the local private sector  Attracting Foreign Direct Investment (FDI)  The Right Order of Leveraging  Summing Up

Part II

What Ought to Be

Cha

pter 8 Challenges to NAMA Finance – Mandates, Aggregation and Lack of Instruments The Aggregation Gap The guarantee system and its shortcomings The ECAs as aggregators

51 54 55 59 59 59 60 61 62 65

67 70 72 74 75 76 76 77 77 79 80

81 83 84 85 86 88 89 91 92 97

101 102 105 109

Mandates Summing Up

CONTENTS

Chapter 9 Roles of the Green Climate Fund  The Green Climate Fund and Risk  The Green Climate Fund and Green Bonds  The Green Climate Fund and Equity  The Green Climate Fund as Aggregator  Other Options  Putting the Pieces Together  Summing Up

Chapter 10 Conclusion  How to Start?

Notes References Index

vii

110 115

117 120 122 126 129 130 133 134

137 141

143 147 149

LIST OF FIGURES AND TABLES

Figures Figure 1. NAMAs in the context of general development planning Figure 2. Weight of policy versus project NAMAs relative to capabilities of developing countries Figure 3. Emissions reduction returns on investment in the CDM Figure 4. From expost to exante approvals in CDM Figure 5. Financial engineering of NAMAs Figure 6. Suboptimal investments in emissions reduction Figure 7. Multilateral investment in mitigation and typical instruments employed Figure 8. Sourcing instruments and operational instruments for NAMA financing Figure 9. Direct and indirect taxation Figure 10. Cost of types of risk Figure 11. The right order of leveraging Figure 12. The financing value chain Figure 13. Instruments in the financing value chain Figure 14. Maximizing leveraging Figure 15. The aggregators’ central role in organizing financing Figure 16 Expanded securitization model Figure 17. Simple investment structure involving green bonds Figure 18. Options for financial product development

Table Table 1. Types of Policy NAMAs

19

22 32 36 44 46

53

55 57 63 86 94 95 96 104 119 126 133

21