Chapter 11. Response to the Paris Climate Accord: Scaling up green projects from a bottom-up perspective1
The Paris Accord and the 2030 Sustainable Development Goals (SDGs) call for a massive scaling up of green projects. However, such infrastructure investments are not achievable without private financing. Over the last few years, R20 Regions of Climate Action has been working to address this gap by collaborating with the regional and local decision makers, technology companies and investors to develop bankable projects in different areas of the green economy from energy generation to waste management. This chapter highlights several programmes and financial instruments, including novel pre-investment facilities (PIF), being used to implement projects worldwide in support of these new global targets.
The Paris Accord and the 2030 Sustainable Development Goals: What will change?
International political commitment at COP21 is the first all-encompassing global response to the climate change threat. In its aftermath, national and local decision makers will be urged to implement pro-green policies favouring clean technologies, greater energy security, the creation of green jobs, and the improvement of both human and environmental health. Implementing the Paris Accord and the 2030 SDGs will involve massive infrastructure transformations worldwide. The clean energy transition will require scaling up the adoption of low-carbon solutions: over the coming decades this process should dramatically alter local and global economic landscapes.
Challenges and opportunities of the green economy
Paradoxically, in many instances where the clean energy transition is high on the political agenda, government officials lack relevant information to make the best decisions, or their administrations are short of technical and financial knowledge, often struggling with implementation and internal processes.
In parallel, economic actors are competing for markets, continually innovating and developing new green products and services. Decision makers have a vast choice of technologies: yet, informed decisions demand a good understanding of the solutions on offer. There is a need for state-of-the-art feasibility studies, which are prerequisite tools for decision makers and set out the project’s financial outlook to attract investors.
The world of finance is taking an increasing interest in shifting capitals from the carbon economy to the green economy. However, de-risking factors such as political backing, sound technical solutions and financial structuring (feasibility studies) are missing, causing investors to claim that “profitable green projects” are scarce or non-existent.
Therefore there exists an important opportunity to develop bankable projects, in partnership with technology companies and supported by policy makers so as to minimise risks and unleash massive investments in the green economy.
R20’s track record and vision
During its first implementation phase (2011-15), R20 has demonstrated that by working with decision makers, technology companies and investors, it can identify, design, finance and implement bankable projects. Examples include waste management in Algeria, production of solar photovoltaics (PV) electricity in Mali (50 megawatts) and LED public lighting in Brazil, with an overall cumulative capital expenditure of USD 1 billion (Figure 11.1).
Source: Own elaboration.
Scaling Up – Local to Global Climate Action
In parallel, throughout the year 2015, R20 collaborated with Yale University, the Stanley Foundation and the USC Schwarzenegger Institute on a report entitled “Scaling Up – Local to Global Climate Action” which provides examples of states, regions and cities that have taken measures to cut greenhouse gas (GHG) emissions and show that when scaled up nationwide, such actions can achieve ambitious national reduction targets. The report demonstrates the potential for subnational action to contribute towards, and raise, the ambition of national efforts.
To illustrate the importance of subnational action, the Yale University research team selected five to ten case studies of subnational climate action in priority countries, including major emerging economies like the People’s Republic of China and India, as well as developed countries, such as the United States and representatives from the European Union, to clearly show that if an entire country adopted a particular subnational policy it would achieve greater emissions reductions and could meet target goals. The report2 was launched at COP21 in Paris, at the “Cities Day” and is available at to share and use as a tool to highlight the impact of subnational action and inspire.
Climate Finance: A Status Report and Action Plan
At the request of French President François Hollande and Minister Laurent Fabius, Chair of COP21, the “Climate Finance: A Status Report and Action Plan” was launched at the COP21 in Paris by Arnold Schwarzenegger, R20 and the USC Schwarzenegger Institute. The Climate Finance report offers a comprehensive roadmap to effectively tackle the climate finance challenge. It provides examples of supportive governments in various regions around the world (at the subnational and national level), who have mature low-carbon technologies and substantial amounts of capital, but also points out that intermediaries are needed to align interests and develop projects. The report concludes by proposing concrete solutions moving forward and will also serve as the basis for the implementation of climate finance solutions post COP21.3 The report was chosen by Big Path Capital as one of the “top 10 smartest reports on the intersection of climate change and finance”. It was featured in “The Smarter Money Review: Winter issue”, a special edition featuring articles by well-known leaders within the impact investing community.
R20 Action Plan 2016-20
Capitalising on its Phase I achievements, in order to meet international commitments under the Paris Accord, R20 launched its Phase II Strategy (2016-20) aimed at stepping up the transition to the green economy on a global scale. In terms of methodology, R20 relies on its project development model that proved successful during Phase I (Figure 11.2).
Phase I (2011-15): Demonstration projects and project development model
Source: Own elaboration.
Phase II (2016-20): Scaling up phase – Training and accelerated finance
Based on the success of its demonstration projects, R20 wants to contribute to unlocking the potential for green infrastructure projects globally. To do so, two key enablers must be put in place: i) an ecosystem of blended finance from philanthropies, bilateral and multilateral funds, private equities, pension and sovereign funds, debts; and ii) a training and capacity-building programme for national and subnational leaders, designed to provide them with the knowledge, tools and skills necessary to catalyse the transition to the green economy.
R20 financial instruments
As a first step, R20 has materialised the concept of pre-investment facility (PIF), to provide investors with a portfolio of bankable projects from different regions and different sectors: currently renewable energy, energy efficiency and waste management. The PIFs are structured as revolving loan funds with seed capital for pre-feasibility studies. Dedicated PIFs are under development for large-scale initiatives: solar PV in sub-Saharan Africa, waste management, “faithful cities”, etc. Each PIF ranges from USD 3-10 million.
To provide a dedicated source of capital for the projects developed under a PIF, in parallel R20 is proposing the concept of the Green Investment Accelerator Fund (GIAF). The GIAF provides seed capital that can align project developers with intermediaries that can de-risk transactions and ensure the bankability of projects. The GIAF acts as an accelerator, helping to jump-start transactions and unlock access to important sources of capital. The GIAF proposes a target fund size of USD 1 billion.
R20 training and capacity building
Based on its project development model, R20 is also designing a training initiative for national and local decision makers to develop their skills as project managers. The aim is to help them become “facilitators/co-ordinators” in the transition to the green economy, and build a large-scale platform of bankable projects.
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There is an absolute need for working in partnerships and with networks, rather than in silos. This requires facilitation that brings together stakeholders from different backgrounds to provide policy advice and to address project development bottlenecks.
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Trained facilitators must be able to accompany project development processes, including by identifying opportunities, selecting appropriate technologies and utilising financial mechanisms to deliver pre-feasibility studies (PIFs).
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Trained facilitators must understand the financing world and make projects “investment-ready”: the challenge is to ensure that bankable projects proposed to investors actually receive the projected financing and become implemented on a global scale.
Summary of R20 Action Plan for 2016-20
In order to contribute to the Paris Accord commitments, the R20 Action Plan for 2016-20 aims at stepping up the green economy transition through R20’s financial instruments to enable effective project design and implementation on a large scale (Figure 11.3). Upstream, R20 relies on its project development model (Phase I: 2011-15) to deliver theoretic and practical training, and build new skills for green economy managers.
Source: Own elaboration.
The Cities Climate Finance Leadership Alliance
Addressing the climate finance gap will require the co-ordinated action of multiple stakeholders, complementing each other and understanding how the impacts of their respective efforts can accelerate the flow of climate finance globally.
In late 2014, the United Nations Secretary-General, Ban Ki Moon, created the Cities Climate Finance Leadership Alliance (CCFLA), in order to promote co-ordinated action across sectors and demonstrate the importance of investors in accelerating the flow of climate finance for the delivery of concrete results. Today the CCFLA is an alliance of some 46 organisations from the financial and business sectors, NGOs and networks of subnational governments.
In 2016, R20 Regions of Climate Action was selected to co-ordinate the CCFLA Secretariat, next to three partner organisations: the Global Fund for Cities Development (FMDV), the United Nations Development Programme (UNDP) and the United Nations Environmental Programme (UNEP). The CCFLA members are cities and regions, NGOs, financial institutions, development banks, etc.
Scaling up in practice: The Planet Pledge Fund
As a first step of R20’s Phase II Action Plan (2016-20), R20 has teamed up with the Leonardo DiCaprio Foundation4 to establish the Planet Pledge Fund (PPF), which is a practical, sustainable financial solution enabling a massive scale up of both green infrastructure projects and nature conservation initiatives. Developed by the Leonardo DiCaprio Foundation, the PPF brings together a coalition of philanthropists willing to pool their resources in a global fund amounting to up to USD 1 billion over the next 10 years.
This fund will be invested worldwide in clean economic projects worth USD 10 billion, and with high potential to mitigate climate change. Being highly profitable, these projects are expected to generate USD 1 billion of profits, which will be used for the conservation of endangered habitats and species. The PPF will be governed by the contributing philanthropies and managed by world-leading experts in science, policy, finance, and community development from UN agencies, NGOs, and foundations, to identify and implement the most viable and “quick win” projects worldwide.
In May 2016, R20 and the Leonardo DiCaprio Foundation signed a partnership agreement to secure an ambitious pipeline of green infrastructure projects. R20 immediately launched a worldwide campaign among its own network, other networks of cities and regions, as well as the CCFLA, inviting local and regional authorities to submit their environmental projects related to renewable energies, energy efficiency and waste management.
After proper due diligence and a screening process, the best projects will be submitted to the PPF for funding. By September 2016, R20 and its networks of cities and regions aim to secure 100 projects5 of an expected cumulative capital expenditure of USD 4 billion, with a targeted return on investment of a minimum of 10%.
Notes
← 1. This chapter should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).
← 2. See http://regions20.org/images/ScalingUp.pdf.
← 3. See http://regions20.org/images/ClimateFinance.pdf.
← 4. See http://leonardodicaprio.org/.
← 5. See http://100projectssite.wordpress.com (Log-in code to download documents: 100projects).