Reconciling climate and development by Agence Française de Développement

Agence Française de Développement

RECONCILING CLIMATE AND DEVELOPMENT

Tropical cyclone Wilma on the Fiji Islands © NASA/GSFC/Jeff Schmaltz/MODIS Xxxx Land Rapid Response Team

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AGENCE FRANÇAISE DE DÉVELOPPEMENT RECONCILING CLIMATE AND DEVELOPMENT

A challenge for development It is possible to take action for both development and against climate change. On the one hand, the acceleration of climate change jeopardizes progress in development all around the world, especially in the poorest countries. On the other hand, development threatens to exacerbate climate change because it goes hand in hand with an increase in the consumption of natural resources and fossil fuel.

This situation means that development institutions are faced with an unprecedented issue: it is now necessary to reconcile development needs with the climate constraint and assist countries in their ecological transitions. The world faces common challenges, the solutions must be shared. Making a socially and economically credible commitment to reduce greenhouse gas emissions and fight against the impacts of climate change requires implementing new development trajectories and transition paths, which will bring about a sustainable development that benefits all.

Conference of the Parties on Climate Change in Paris in 2015 The international negotiation on climate change must lead to shared commitments in terms of reducing or changing emissions trajectories, which can fundamentally structure countries’ development strategies. It must also approve the creation of mechanisms that are essential to financing actions to fight against climate change in developing countries, such as the Green Climate Fund. From 30 November to 11 December 2015, France will host COP21, the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC).

This conference should mark a crucial step in the negotiation of the future agreement for the post-2020 period. It will involve coming up with an ambitious text that will allow the rise in temperatures to be maintained at less than 2°C compared to the pre-industrial era. This agreement will establish the framework for a transition towards low-carbon economies. AFD is expecting clear signals from this agreement in order to more effectively: ■■ Assist countries in their energy and ecological transition; ■■ Support the economic valuation of the environmental services rendered by forests and agriculture; ■■ Reduce the vulnerability of countries to the impacts of climate change.

Medellin Metrocable, Colombia © Carlos Tobón for AFD

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AGENCE FRANÇAISE DE DÉVELOPPEMENT RECONCILING CLIMATE AND DEVELOPMENT

Ambitious commitment to development and the climate

Sectoral breakdown of amounts earmarked for mitigation (2005-2013) Biological sequestration

Solid waste management % % 6% 4 1

Fuel Switch

16%

23%

Renewable energies

Energy efficiency

Between 2005 and 2013, AFD Group committed some EUR 15bn to finance projects that have a positive impact on the climate.

23%

27%

Public transport

EE and/or RE credit line

Sectoral breakdown of amounts earmarked for adaptation (2005-2013)

AFD is a leading and innovative actor in financing the fight against climate change. For several years, it has been working to support a development that reconciles economic, social, environmental and climate issues,.

Prevention of risks of extreme climate events

22%

20%

Agriculture and natural resources

With a commitment of EUR 2.427bn for “climate” finance in 2013 alone, AFD is one of the main international public financiers of the fight against climate change. 58%

Water resources

AFD Group “climate” commitments since 2005 EUR 2,637m EUR 2,350m 525 EUR 1,236m

EUR 2,428m

575 422

430

EUR 1,994m

473

170

146

EUR 2,427m 323 518

436

145 EUR 780m EUR 568m

247

422

568

658

2005

2006

2007

EUR 422m

Mitigation (incl. dual contribution) Adaptation (incl. dual contribution) Budget and sectoral support

310 1,889 1,493

1,850

1,785

2012

2013

1,437

982

2008

2009

2010

2011

Note: As certain projects contribute to both mitigation and adaptation, the annual total of climate finance is not equal to the sum of the three climate project categories.

Actions to combat climate change and its impacts can be divided into three categories: ■■ Mitigation, i.e. reducing greenhouse gas emissions; ■■ Adaptation, which involves adjusting human, economic and natural systems to the changes caused by climate change; ■■ Support for ecological transition policies, which aim to provide overall assistance to governments, regional and local authorities and territories, as well as to the major economic actors, in implementing low-carbon development trajectories that are resilient to the impacts of climate change.

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AGENCE FRANÇAISE DE DÉVELOPPEMENT RECONCILING CLIMATE AND DEVELOPMENT

Climate-Development strategy

AFD’s climate bond

AFD has adopted a Climate-Development strategy for 2012-2016, which is first based on an ambitious quantitative target for activities that have a climate co-benefit in developing countries: > 50% of AFD’s annual activity > 30% of PROPARCO’s activity (private sector arm) This commitment is mainstreamed into AFD’s development assistance objectives and does not compete with its action to support poverty reduction and social development. Furthermore, for all directly financed projects (excluding budget support, financial intermediation and capacity building) that have a significant and quantifiable impact in terms of greenhouse gas emissions (increase or decrease), an ex ante analysis of their carbon footprint must be conducted using a robust and transparent methodology.

In September 2014, AFD issued its first climate bonds on the financial markets, for an amount totaling EUR 1bn. The climate bond is an innovative and incentive financing tool to support development projects that seek to fight climate change. Building on its experience and commitment, AFD gave investors, particularly socially responsible investors, the opportunity to invest in a bond with specific and robust standards, which go beyond the usual international standards for green bonds. AFD’s climate bond will finance projects to fight climate change that have a direct impact on reducing greenhouse gases.

Similarly, the project’s impact on the vulnerability to climate change in the area where it is implemented will be studied. The methods, tools and performance indicators developed by AFD are shared and made available to the international community on AFD’s website: http://climat.afd.fr Finally, the carbon footprint of projects is taken into account via a selectivity grid, which may lead to certain projects being excluded, depending on AFD’s mandate for operations in the region in question, the country’s level of development and its climate policy.

Annual targets for financial commitments with positive climate impacts

50% of annual commitments in the Mediterranean 70% of annual commitments in Asia

70% of annual commitments in Asia

30% of annual commitments in Sub-saharan Africa

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AGENCE FRANÇAISE DE DÉVELOPPEMENT RECONCILING CLIMATE AND DEVELOPMENT

Financing a wide range of actions AFD’s financial tools, which range from grants to loans on market terms, and include soft loans and technical assistance, allow it to support development projects that have a “climate” co-benefit, and to provide a response to the diversity of situations encountered in the fight against climate change. AFD also implements European and international “climate” mandates.

Promoting renewable energy development AFD supports the development of clean technologies, such as solar and wind power, biomass and geothermal energy. It involves achieving cost parity with the conventional power generation industries in the short or medium term.

Solar power complex AFD has supported the Moroccan Solar Plan (MSP) by contributing to financing the development of a 500 MW thermodynamic solar power concentration complex in Ouarzazate. The MSP aims to develop a minimum solar power generation capacity of 2,000 MW by 2020. It is mainly intended to meet local needs and will reduce the Kingdom’s energy dependence, as well as the negative impact of fossil fuel imports on the State budget.

Solar power plant, Morocco © MASEN for AFD

Facilitating corporate investments to fight climate change The involvement of private sector actors in the fight against climate change is an essential factor in promoting a momentum for sustainable change at global level. Consequently, AFD has made financial resources available to partner banks on suitable terms in several countries, for example, in West Africa, Turkey, Uganda, India, the Philippines and Mauritius, to allow them to finance more investments in energy savings.

Climate finance on market terms Several of PROPARCO’s “climate” projects have benefited from additional resources from the ICCF (Interact Climate Change Facility) program, a common debt investment fund, which was set up by several European financial institutions which are active in financing the private sector in developing countries. Its aim is to support renewable energy or energy efficiency projects led by the private sector. Finally, AFD seeks to enhance the match between vocational training and employment, and increase the number of qualified staff in the “green jobs” sectors in Central Africa, Morocco and Pakistan.

Ashegoda wind farm, Ethiopia © AFD

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AGENCE FRANÇAISE DE DÉVELOPPEMENT RECONCILING CLIMATE AND DEVELOPMENT

Assisting governments and local authorities to implement “climate” public policies

program is backed by multi-donor financing. This support is materialized by the joint definition and implementation of a public policy supervision matrix related to the climate.

Alongside other bilateral and multilateral donors, AFD has initiated an innovative budget support approach for countries (Indonesia, Mauritius, Mexico, Vietnam) which mainstream climate change into their development strategies. The general financing of national and territorial “climate plans” aims to promote the development of public policies to fight climate change and the creation of intersectoral institutional frameworks. AFD provides technical assistance to help Sub-saharan African countries establish mechanisms to define and monitor “climate” strategies.

Climate plan AFD is supporting Vietnam’s climate plan in the form of successive budget support to the “Support Program to Respond to Climate Change (SP-RCC)” led by the Government. This national action

Supporting low-carbon and resilient development in cities and the development of urban public transport By 2050, it is expected that over 70% of the world’s population will be living in cities. Cities are major centers of energy consumption. They are both the main causes of climate change and one of the

main vehicles for reducing greenhouse gas emissions. Cities are particularly vulnerable to the impacts of climate change due to population concentrations and informal housing neighborhoods. AFD supports public policies that aim to achieve low-carbon urban development by taking changes in the climate and its impacts into account. It also finances projects to develop urban and interurban transport, solid waste management, energy efficiency in buildings and stormwater drainage.

Metro line The development and mobility program for East Santo Domingo that AFD is supporting combines the development of clean public transport services by extending the metro line towards the East of the capital, the creation of a waterway transport system, and the development of precarious neighborhoods, which are vulnerable to flood risks, such as the Barquita neighborhood. La Barquita neighborhood, Santo Domingo, Dominican Republic © AFD

Protecting ecosystems and supporting agriculture that is less emissive and more resilient to climate change

AFD tests tools that make it possible to minimize risks related to climate hazards, by supporting the development of index-linked insurance mechanisms based on indicators related to weather conditions, which are intended for farmers in Africa.

Rural areas, where communities are directly dependent on soil productivity and the proper functioning of ecosystems, will be particularly affected by climate change.

AFD also contributes to protecting coral reefs in the Pacific Islands in order to protect populations and economies in coastal areas against more intense climate events.

AFD aims to provide support for these issues by developing an approach that aims to support and promote all the co-benefits brought by the development of these territories, particularly the “climate services” they provide. For example, AFD promotes agroecology in geographical areas where this practice is relevant. This agriculture greatly reduces greenhouse gas emissions compared to conventional tillage practices. It also facilitates water infiltration and its retention in soil. This agriculture limits its erosion

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AGENCE FRANÇAISE DE DÉVELOPPEMENT RECONCILING CLIMATE AND DEVELOPMENT

Developing the carbon sequestration potential of forests Deforestation, which is an important source of greenhouse gas emissions, is a major issue in many developing countries.

countries will be able to more effectively manage their forests, lead strategies and policies implemented to combat deforestation and measure their effectiveness. Thus, they will actively participate in the international financial mechanisms, such as REDD+, which aim to enhance the economic value of the benefit of carbon sequestration provided by forests.

Satellite imagery In the Congo Basin, for many years now, AFD has been supporting the sustainable development of this tropical rainforest, an essential carbon sink for the planet. This involves private forest operators, public actors and local communities. AFD has developed an innovative partnership with the company Airbus Defence and Space in order to provide Central African countries with access to high resolution SPOT satellite imagery. At the same time, the French Facility for Global Environment (FFEM) supports the adoption and methodological and technical management of satellite technologies. In the long-term, these

Adapting to climate change by more effectively managing water resources Climate change will have an extremely serious impact on the availability of water resources in a large part of the world. Consequently, the sustainable management of this resource, the protection of its quality, and the management of demand, is a crucial issue. AFD supports projects for integrated water resources management, to improve the yields of water networks, and increase capacities for storing water resources and wastewater treatment in countries subject to high water stress.

In Palestine, AFD is financing the renewal of drinking water supply networks in Beït Sira and surrounding villages. This will prevent leaks and thus save some 85,000 m3 of water a year.

International “climate” finance architecture In view of the challenges and financial amounts that need to be implemented rapidly and on a massive scale, the future international climate finance architecture – in particular with the gradual operationalization of the Green Climate Fund – will, well beyond the traditional international development assistance actors, need to rely on all the professional financial and technical actors who are active at both international and local level: from the North and South, public, private and multilateral. AFD plays a key role in the work on harmonization among national and international financial actors for tools, methods and practices in order to ensure that climate issues are more effectively and more widely taken into account in development financing. It is in this sense that AFD is extremely active in the operational and strategic dialogue with its partners of the International

Development Finance Club (IDFC), which was created in 2011 and now gathers over 20 international, national and regional development banks, the vast majority from the South. They are powerful, legitimate and essential actors for the coherent implementation of the climate and development agendas of their countries and the international community. In 2013, all the member institutions of IDFC provided USD 87bn of financing for activities that contribute to the fight against climate change and its impacts, including over USD 55bn earmarked for non-OECD countries.

www.idfc.org

AGENCE FRANÇAISE DE DÉVELOPPEMENT

RECONCILING CLIMATE AND DEVELOPMENT

AFD, the Agence Française de Développement , is a public development-finance institution that has worked for seventy years to alleviate poverty and foster sustainable development in the developing world and in the French Overseas Provinces. AFD executes the French government’s development aid policies. Working on four continents, AFD has seventy-one field offices and bureaus, including nine in France’s overseas provinces and one in Brussels. The Agency provides financing and support for projects that improve living conditions, promote economic growth, and protect the planet.

FFEM PROPARCO, AFD’s subsidiar y dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote su stainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment.

The French Global Environment Facility / Fonds Français pour l’Environnement Mondial (FFEM) is a bilateral public fund initiated by the French Government in 1994. The FFEM secretariat and its financial management are entrusted to the Agence Française de Développement (AFD). The FFEM co-finances projects that encourage the protection of the global environment in developing countries. Its co-financing is exclusively done as grants and is used for the implementation of pilot projects that combine environmental protection and economic development in the recipient countries. The FFEM is an influential strategic instrument for the French policy on Official Development Assistance regarding global environmental protection. Its activities focus on the topics of biodiversity, international waters, the climate change, land degradation and desertification, persistent organic pollutants and the stratospheric ozone layer. By the end of 2013, the FFEM has co-financed 258 projects with €299m. Two thirds were spent on sub-Saharan Africa and the Mediterranean.

www.proparco.fr

www.ffem.fr

AGENCE FRANÇAISE DE DÉVELOPPEMENT 5 rue Roland Barthes 75598 Paris Cedex 12 – France Tél. +33 1 53 44 31 31 Fax +33 1 44 87 99 39 www.afd.fr

CROSSCUTTING SUPPORT DEPARTMENT CLIMATE CHANGE DIVISION www.climat.afd.fr

Creation: Planet 7 – November 2014

10-31-1482 / PEFC certified / This publication comes from sustainably managed forests and certified sources. / pefc-france.org

In 2013, AFD committed €7.8 billion to projects in developing and emerging countries and in the French Overseas Provinces. These AFD-financed projects will provide schooling for children, improve maternal health, promote equality between men and women, support farmers and small businesses, and bolster access to drinking water, transportation and energy. These newly-funded projects will also help mitigate climate disruption by abating nearly 3.3 million metric tons of carbon dioxide-equivalent annually.