Chapter 6 - … And the Financiers

Summary

To engineer the financing of a NAMA it is necessary to know which financing tools and which financiers are already in the market. Various institutions offer different sets of tools – although some new NAMA institutions claim that they provide any tool as required. When drafting ideas for NAMAs it is tempting to assume that this new concept, which is not an instrument, will also come with a new source of funding – preferably grant funding flowing from the deep pockets of a prospective Green Climate Fund. However, the large majority of the funding for the investments promoted by NAMAs will come from other, well-known sources and will be employing well-known principles that are not grants. That does not mean that all the tools are at hand to financially engineer all promising and visionary NAMA options.

Financing and financing institutions have been central to the UNFCCC since its inception. The UNFCCC was originally brought about with a financial mechanism – the Global Environment Facility (GEF) – which has been providing financing for a multitude of projects over the years. Established in 1991, it has the longest track record of all institutions financing climate change mitigation and adaptation programmes and projects. GEF enjoys a partnership with 10 agencies, including the major international development banks as well as FAO, IFAD, UNEP, UNIDO and UNDP – supporting not only climate change, but also a range of other environmental agendas. GEF provides grants for projects on the basis of the documentation of incremental costs affiliated with a low emissions alternative, compared to a business as usual choice. About 33 per cent (or USD 1.14 billion) of GEF's Fifth Replenishment, from 2010–2014, was dedicated to climate change, aiming to reduce 500 million tonnes of CO₂e. By 1 July 2012, GEF had invested in 569 climate change mitigation projects, since 1991, contributing USD 3.6 billion as co-financing to total investments of USD 27.3 billion. Thus, GEF's average financial involvement in the climate change mitigation projects was about 13 per cent – signalling a relatively small incremental cost in most projects.

While GEF's track record is impressive, it is a far cry from the USD 100 billion target for developed countries’ annual contribution to climate change actions in developing countries. To raise and channel this amount to climate-related investments, the Conference of the Parties in Cancun, in 2010, decided to establish the Green Climate Fund (GCF).