The ALP Forum sessions on accelerating investments to support NDC implementation and on global carbon market instruments were held on the 7^th of September 2021.

The first session discussed translating climate change action into implementation with the help of innovative finance. The key messages that emerged were that private investment needs to be accelerated; bankable and climate-resilience focused pipeline projects should be developed; and embedding climate change in system transitions will help countries to adapt and move away from high-carbon systems and invest in new technologies, markets and innovation.

Ms. Joanne Manda, Senior SDG Investment Advisor, UNDP and Finance Working Group (FWG) Co-Chair, LEDS GP, who moderated the first panel discussion on “LEDS GP Finance Working Group’s initiatives to support countries in accessing finance for NDC implementation,” emphasized in her opening remarks that it was important to accelerate private sector investment in LEDS and NDCs. She spoke on the core objectives and pillars of work of the finance working group of LEDS-GP.

Dr. Sanjini U. Nanayakkara, Staff Scientist, NREL, made a presentation on the Regional Accelerator for Agriculture, Climate and Energy (RAACE) program that supports the mobilization of climate financing by accelerating the development of bankable, climate-focused project pipeline. It focuses on community-scale projects on topical areas of common interest to countries defined by regional communities of practice. The program embeds regional experts in Asia, Africa and Latin America and the Caribbean region, who play a facilitating and advisory role in supporting project developers and government officials.

Mr. Marlon Apanada, Southeast Asia Engagement Lead for Energy & Climate, WRI and FWG Co-Chair, LEDS GP, highlighted the power of the private sector to drive energy transformation. He said that private sector investment was essential for achieving enhanced NDCs as the public sector’s spending alone could not support the level of investment needed to achieve country goals and deep carbonization. He said, “The Clean Energy Investment Accelerator works with large energy buyers from the private sector to thrust sustainable market transformation, being aware that government alone lacks the resources to invest in low-carbon energy infrastructure at a scale needed to avoid the worst impacts of climate change. Particularly at this critical moment, as governments develop COVID-19 recovery plans, there is an urgent need for private sector champions to promote country-focused green growth.”

Role of national and international development finance institutions

In the second panel discussion, moderated by Mr Apanada, the focus shifted to “The role of national and international development finance institutions (DFIs), Multilaterals and Bi-laterals in financing NDCs and LEDS- funds, potential sectors, projects countries.” Karan Mangotra, Senior Climate Change Specialist of The World Bank Group, spoke about the the World Bank Climate Change Action Plan 2021-25, released during the pandemic period, which reaffirms its commitment to set bold strategic directions for climate action on mitigation, adaptation and implementation. The World Bank is assisting countries in raising ambitions of their NDCs and developing long-term strategies through a variety of finance and technical support facilities. For FY 2021-25, the Bank has set a climate finance target of 35% on average to support of green, resilient, and inclusive development, and for IDA and IBRD, it will be allocating at least 50% of the climate finance to adaptation over the next five years.

Dr. Dhruba Purkayastha, Director, The Climate Policy Initiative, India, said that the US India Clean India Finance – Project Preparation facility has been fairly successful, adding that “we need to bridge the gap between finance and projects”. He said the role of DFIs and MDBs was huge, and that DFIs needed to finance NDC areas where investors are hard to find. MDBs and DFI have access to finance at lower costs, so they need to look and explore possibilities to support NDC interventions and strategies. It was important to look at blended finance, where MDBs can play an important role. He said that a huge amount of investment was needed to decarbonize Asia, which is vulnerable and has a huge need of energy-intensive cooling and heating.

Dr. Radhika Lal, SDG Finance Policy Advisor and Team Lead, UNDP BRH Bangkok, said “Climate-responsive public finance continues to be key, both in and of itself and also to stimulate private investment through fiscal, regulatory and policy measures and facilitating de-risking as well as to effectively leverage international climate finance and innovative finance, including green bonds, in the shift to LED. Complementary to this is promoting private sector and investments to be more SDG and climate-aligned and all that goes with that, including the importance of practice assurance standards in this regard to undermine greenwashing and focusing on the development of bankable project pipelines.” She said a three-part focus should look at climate-responsive investible opportunities, use of innovative financing instruments and SDG bonds and green and blue bonds.

Mr. Ping Yean Cheah, Senior Strategy Officer (Urban), Asian Infrastructure Investment Bank, said “Post-pandemic, infrastructure connectivity projects need to adopt higher technical standards and best practices that would accelerate economic recovery, sustainable development and climate resilience.” He said that nearly 20% of the AIIB-wide USD 20 billion portfolio is aligned with the Green, Resilient, Efficient, Accessible, Thriving (GREAT) principles, and spoke about the Multi-lateral Co-operation Center for Development Finance, a multilateral initiative comprising multiple contributors and IFIs to address the challenge of infrastructure connectivity.

In the second session of the day, experts said that climate change/GHG emission rise has been a result of market failure, and that the costs of emissions are not included in economic activities. Putting a price on carbon is extremely important since most of the countries have submitted their NDCs and estimates show that the world is falling short of the efforts needed to curb rising temperature levels. Carbon pricing is an instrument that can help various stakeholders raise their ambition subsequently, and aims at internalizing the external cost of pollution.

Mr. Kundan Burnwal, Advisor, Global Carbon Markets – India, said that finance flows to align with the Paris agreement cannot be met by public finance alone and that private finance needs to play a major role. This can be achieved if CO₂ is priced high enough to achieve decarbonization. The primary aim of carbon pricing is to internalize the external costs of pollution by putting a price of a ton of CO₂eq emitted.

The instruments and mechanisms for carbon pricing encompass domestic and international actions. Domestic actions include carbon tax, emissions trading systems and energy subsidy reforms. International actions include voluntary carbon markets, Article 6 of the Paris Agreement and linked emissions trading systems.

Between domestic options of emissions trading and carbon tax, the former is more complex for implementing, along with uncertainty in prices. Emissions trading, however, provides certainty in emissions reductions. After many pilot attempts since 2010, China has announced a national-level ETS governing the power sector.

Revenue-neutral carbon tax approaches, where the carbon tax collected is used for welfare projects, have more acceptability. He said that while implementing a carbon pricing instrument, thought must be given to preventing disproportionate effects on vulnerable communities, addressing competitive concerns such as carbon leakage, and ensuring transformational change rather than incremental reductions. Currently, carbon pricing mechanisms cover only 20% of the global emissions.

Mr. Maximilian Friedrich, Junior Advisor, Global Carbon Markets, highlighted the key stumbling blocks concerning global carbon markets governance, such as questions on how to transition leftover under CDM to Article 6 provisions and concerns around double counting. He added that Article 6 also needed to explore the financing of climate change adaptation.