New publication studies climate finance at national level

News, 20 March 2015
The UK Department for International Development (DFID) has published a new guide to the governance of climate finance written by a team of IIED researchers.

Vietnam's Cuu Long Delta Rice Research Institute is working on developing rice strains that are more tolerant to heat, increased salinity and longer periods under water (Photos: V. Meadu/CCAFS)

The guide reviews emerging approaches to climate finance and aims to provide an up-to-date understanding of the national processes being employed to manage finance for climate change adaptation and mitigation initiatives.

A PDF-version of the 85-page guide, entitled 'A guide to national governance of climate finance', is free to download from the series website.

The paper is part of a series of DFID Topic Guides, which pull together the best of current thinking and highlight the main issues of debate. They are designed primarily for DFID climate and environment advisors, and development professionals in general.

This publication was written by a team of IIED researchers led by Neha Rai, senior researcher, Climate Change Group. The other authors are Nanki Kaur, principal researcher, Climate Change Group, IIED's chief economist Paul Steele, and Sam Greene and Bowen Wang, who are consultants with IIED's Climate Change Group and the International Center for Climate Change and Development (ICCCAD), in Bangladesh.

Rai said: "This topic guide will provide practical support to DFID advisers developing and delivering national climate change programmes within various developing countries. They can then ensure resources will be appropriately allocated, spend and tracked, and results generated from the process."

National systems for climate finance

The term 'climate finance' refers to international and national, public and private sources of funding for investment in adaptation and mitigation initiatives. This type of spending is increasing, but investments in adaptation and mitigation often come with huge costs and very specific funding requirements. Climate finance is expected to play an important role in enabling such investment.

The paper assesses the global and national climate finance landscapes, and suggests ways to build more effective national systems. It features decision trees that show how policy teams can choose context specific financial intermediaries, instruments and planning systems to mobilise and channel climate finance from source to end use.

It also includes case studies of approaches being adopted at international, national and local scale.

Key lessons

To date, governments and private organisations have piloted various approaches channelling climate finance. These can provide important lessons for policymakers. The study highlights three key lessons:

  1. Use appropriate mix of financial intermediaries
  2. Take a flexible approach to financial instruments, and
  3. Strengthen country systems for policy, planning, budgeting and reporting on climate finance.

The paper opens with a review of the main intermediaries, instruments and modalities that govern the flow of climate finance within countries. It provides guidance on how development advisors can learn from, and support, these evolving national arrangements.

The second section looks at climate finance on an international level, including:

  • Available sources of climate finance
  • Financial intermediaries used to mobilise and channel finance
  • Economic and financial instruments used to incentivise investment, and
  • Financial planning systems used to govern the flow of climate finance.

The third section shows how an appropriate selection of financial intermediaries, instruments and planning systems can enable the governance of climate finance at a national level. This section also includes detailed decision trees for selecting intermediaries and for establishing planning systems.

The final section offers a range of conclusions about the national landscape for climate finance. It notes that while the majority of climate finance exists at the international level, an increasing proportion is generated and managed by the implementing country.

National planning and finance ministries, finance institutions and funds are becoming increasingly important in the decisions related to the management and allocation of climate finance. At the same time, local ministries, international and national NGOs and community-based organisations are becoming involved in planning and implementation.

These evolving trends show that many developing countries are taking important steps to ensure that they are ready to receive, manage and disburse climate finance from both public and private sources.

Read more:

Rai and Steele recently wrote a blog about the importance of involving poor families in climate finance.

Contact

Neha Rai (neha.rai@iied.org), senior researcher, Climate Change Group

Paul Steele (paul.steele@iied.org) chief economist, IIED.

Share: