NDF - Financing for climate change and development projects

Central American Finance Ministries establish agenda on climate change

Julie Lennox, Climate Change Focal Point at ECLAC
Photo: ECLAC
The multi-sectoral issues for climate change response and how they link to the SDGs
The multi-sectoral issues for climate change response and how they link to the SDGs
21.09.2018

The NDF, together with IDB, has financed the third phase of a long-term initiative, just completed, on the economics of climate change. The project (ECCCARD) was coordinated by the Economic Commission for Latin America (ECLAC) in close collaboration with regional organisations and Governments of countries in the Central American Integration System (SICA), which includes Guatemala, El Salvador, Belize, Panama, Honduras, Nicaragua, Costa Rica, and, in this phase, the Dominican Republic.

Julie Lennox, Climate Change Focal Point at ECLAC and Technical Coordinator, worked at the front lines from the outset of this initiative, which culminated in an unprecedented shift by Central American Finance Ministries to push climate change response high up onto their national and regional-level agendas.

The story behind the project goes back more than ten years to 2006
“The impacts of extreme weather events in the region were already being felt,” Lennox recalls, “this was affecting food production, infrastructure, and taking a toll on fragile national debt levels.” According to Lennox, there were important risks associated with climate change that many felt should be taken account of in disaster prevention.  

This was the pivotal year when the UK released the Stern Review, a groundbreaking study outlining the economic risks of climate change. “It was the first international study commissioned by a Treasury Ministry, targeting economic actors,” Lennox explains. “The study took a first stab at the economic cost of various scenarios of climate change, extrapolating 200 years out.”

Following on from the Stern Review
Lennox and her team at ECLAC subsequently became one of the groups to go into the second generation of studies that grew from the landmark report. They took a regional approach, working with seven Central American countries and joined later by the Dominican Republic. The initial phase was designed with delegates from the Environment Ministries, which at that time were thought to be solely responsible for the topic of climate. Clearly there was need for a wider viewpoint across government institutions.

“Climate is not just a problem that belongs over there with the environmental experts,” Lennox says. “Our ultimate goal was to sensitize the Ministries of Finance, who handle the budget, debt and public investment, to the risks to fiscal sustainability and national development.” But getting them on board wasn’t easy, as they had many other urgent issues to deal with. “We had to convince them that climate change could change everything and that it would better to take an evidence based and proactive approach,” Lennox recalls. Big extreme weather events that had been hitting national economies and their potential worsening with climate change, as well as the associated risk of pushing a delicate fiscal situation into a much more serious one, became two key entry points for discussion with the Finance Ministries.

Food production vulnerable to temperature rise
Lennox describes how work groups brought together data on climate from the countries and the International Panel on Climate Change (IPCC) with data on key economic sectors. Food production was an obvious area. “Most Central American countries depend on corn, beans and rice, which are all vulnerable to a changing climate.” The anticipated temperature rise in Central America of over 4 degrees Celsius during this century as well as changes in annual amounts of rainfall and its distribution will seriously affect production in sectors such as agriculture and hydroelectricity generation, as well as ecosystems which provide numerous services to humanity. Much of Central America faces drier conditions and increasing drought. Even where levels of rainfall may stay the same, a high temperature rise will bring more evaporation, making less water available for human consumption, farming and hydroelectric production. “Higher temperatures seem to already be bringing more intense rainfall patterns, such as the tropical storms of the last decade, which even without high winds, have caused economic losses equivalent to those caused by hurricanes in the past,” Lennox affirms.

NDF investment adds future direction
“From the start we felt like a good fit with NDF,” says Lennox. “As co-managers of the project, we agreed on what the desired results were, and appreciated the flexibility to be able to adjust the specific pathways to these results with our partners.” According to Lennox, the NDF funding served to consolidate the work already done and permit partners to intensify onboarding the climate change agenda.

For many years the work of the initiative revolved around establishing evidence of the potential climate change impacts in diverse sectors and at the macro-economic level and carrying out policy response dialogues. This work was co-managed with technical experts seconded by the Ministries of Environment and Finance from the respective countries and the Executive Secretariats of the Ministerial Councils of these two sectors within the Central American Integration System. In the case of the Ministries of Finance, the delegates decided to dedicate the third phase with NDF to strengthening their capacities to design public investment projects to better withstand climate change and take advantage of sustainable technologies.

Training and best practice sharing was carried out among the Ministries with a regional workshop.  In the best practice sharing, each country presented a real climate resilience investment project. Among the most compelling, Lennox recalls, were a number of projects carried out by El Salvador’s Ministry of Public Works to use “grey-green” infrastructure, cement structures combined with special grasses to shore up steep slopes in urban areas, and a project to convert an overloaded garbage dump into a technically improved landfill with methane capture and use. 

Two countries requested specific training on how to improve investment project design with multi-institutional groups and using real projects. The trainers encouraged the participants to consider how their projects could contribute to both climate adaptation and mitigation, and how they could be made relevant for the imperatives of governmental ministries. In the case of Honduras, the project teams had five minutes to explain to the Finance Vice Minister how their projects contributed to the country´s climate change response. Together the group estimated that if one project was implemented it could contribute about 8% of the country’s nationally determined emissions reduction contribution under Paris Agreement.

Manifold priority areas going forward
Backed by the success of these activities, delegates from Ministries of Finance and ECLAC prepared a proposal for the next phase. When asked what the main priority should be for responding to climate change and contributing to the SDGs, the members identified not one but five areas within fiscal policy, evidence of how intensely the climate change issue is being onboarded:

1. Taxes, subsidies and incentives
2. Public investment
3. Risk and insurance schemes
4. Mechanisms for financing climate change responses
5. Incorporating responses to climate change in budgets

This project has now been approved by the Council of Finance Ministers of SICA and is being submitted to potential financiers. While these partners look for a big international donor, ECLAC, the Ministries of Finance and the Executive Secretariat of its Ministerial Council are continuing to work with their own resources, sharing best practices and providing training and technical assistance.  

Partners all now have climate change response mechanisms
The good news is also that all partner governments now have climate change policies or laws and have established a public articulation mechanism, where different institutions can discuss how to best respond to climate change.  “One of the interesting results was that the partners evolved towards a shared vision about the priority for adaptation, and how it needs to be sustainable and inclusive, and how in this context, many co-benefits could be generated for the transition to more sustainable, low greenhouse gas emitting economies and for achieving the SDGs.” Lennox adds. The diagram below, which was developed by the ECCCARD partners, illustrates the multi-sectoral issues for climate change response and how they link to the SDGs.

The group is also very interested in best-practice sharing within Latin America and further abroad. NDF, for example, is supporting similar initiatives in Africa. “Not every project has to reinvent the wheel,” says Lennox, “this could be an opportunity for more ‘South-South’ knowledge and experience sharing.”

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