Financing climate change solutions
Financing climate change solutions is concerned with the process of making finances available for projects geared towards climate change mitigation and adaptation. However, it is imperative to understand the difference between funding and financing for climate change solutions. Funding refers to money gotten from federal grants, state grants, local revenue and philanthropic sources which will not be repaid while financing sources for climate change solutions refers to money gotten from sources like government financing and private financing which will be repaid. Funding sources are usually in silos and piecemeal which does not fit-in together to create a comprehensive adaptation and mitigation solution. The process of allocation of grants to fund projects is usually very competitive. This means that a lot of resources will be spent on the application process and most of the applications do not win the grants. The implication is that grant-applicants with fewer resources and less financial strength are at a competitive disadvantage.
Also, financing climate change solutions is technically difficult to leverage upon because of the expertise required to access the finance and the challenge of paying back the money sometime in the future. Because of all these challenges, stakeholders must think deeply on how to combine funding and financing to solve different pieces of the climate change adaptation and mitigation challenge. Domestic public finance, international public finance, market mechanisms and other innovative finance sources should be explored.
Domestic public finance could come from local taxes and service charge, transfers from the federal or state governments, borrowing from domestic financial institutions, bond and equity finance from capital market, etc. Revenues from local taxes and service charge are a very stable source of finance but are usually very limited. Collection of service fees is also a major source of revenue for cities. Cities provide public services such as transport, waste collection and disposal, drinking water supply, etc. These sources generate additional revenue that can be channeled to climate change adaptation and mitigation. National development banks are also a source of domestic public finance for climate change solutions. These banks provide a major option for financing climate change solutions. National development banks can play important roles as agents of government to provide long term finance for climate change solutions. States and local governments may apply to these national development banks for resources to implement climate change adaptation and mitigation. Federal, state and local government bonds provides another source of domestic public finance. The bond issuer will specify what the proceeds will be used for as well as the sources of funds for repayment. This will enable the bond to be focused on climate change responses.
International public finance is another major source for financing climate change solutions. Over time, some bilateral and multilateral donors have focused their attention on providing finance specifically for climate change adaptation and mitigation. Some of the international public funds dedicated to climate change include: Global Environment Facility, Climate Investment Funds, Green Climate Funds, Least Developed Countries Fund, Special Climate Change Fund, Adaptation Fund, Global Facility for Disaster Reduction and Recovery, Nationally Appropriate Mitigation Action Fund, etc. Most international donors and funds channel their resources through national governments of the recipient country. This is the reason for the central role of the national government in the distribution of multilateral funding to sub-national actors. The activities of international donors usually follow agreements negotiated with national governments. Internationally funded projects need to be planned and implemented in a manner consistent with national development plans which must have being disclosed to funders before monies were awarded. Nevertheless, donors can still deal directly with state governments, non-governmental organisations and private sector.
Market mechanisms and other innovative finance sources are also used to finance climate change solutions. The Clean Development Mechanism is a very flexible mechanism whose objective is to assist developing nations in achieving sustainable development and reducing emission of green house gases. The CDM aims at assisting industrialized countries to achieve compliance with their quantified emission reduction. City-level emission trading systems can also be done. This is a mitigation approach to encourage municipal governments and private sector to carry out low-carbon projects.
• Eke is the programme officer at Centre for Social Justice, Abuja.
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