Implementation of climate finance

German and UK-led NAMA Facility to provide the biggest chunk of finance for NAMA implementation

The NAMA facility: funding for NAMA implementation, Image: NAMA Facility

An increasing numbers of financing institutions are providing support for Nationally Appropriate Mitigation Actions (NAMAs). The NAMA Facility, an initiative by Germany and the United Kingdom, is taking the lead in providing finance for NAMAs, offering a total of over €200 million between 2013 and 2015.

What are NAMAs?

NAMAs are a voluntary climate policy tool that provide developing countries with the opportunity to take part in global efforts to combat climate change. They have shown great potential for sector-wide policies that not only reduce emissions, but also contribute to developing countries’ economic, social, and environmental development goals. While there are a numerous NAMAs at the design phase, the implementation of NAMAs is facing challenges in leveraging climate finance, particularly private finance. This is reflected in the limited number of NAMAs in implementation – 13 against 149 in the development stage according to the NAMA Database.

According to data from the NAMA Pipeline Analysis and Database, $7.8 billion of support was requested for NAMA development and implementation until September 2015, while only about $82 million was offered. There is also a disparity between finance initiatives designated specifically for NAMA implementation and the support for the preparation of NAMAs.

The NAMA Facility

The objective of the NAMA Facility is to fill the gap, by providing finance specifically for NAMA project outlines that are ready for implementation. As an outcome of the Doha negotiations in 2012, the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) and the UK’s Department of Energy and Climate Change (DECC) established a joint initiative that has throughout the past years supported NAMA implementation. By establishing the NAMA Facility, Germany and the UK have taken a leadership position in facilitating and encouraging developing countries’ actions for achieving climate change mitigation and sustainable development.

Concretely, Germany and the UK provide a combination of technical and financial support for ambitious and innovative country-led NAMAs that are ready for implementation. These are selected through a competitive selection procedure. The submitted support project outlines must fulfil a set of criteria, with a focus on their potential to achieve transformational change towards a low-carbon development path. This includes evaluation of how the proposed NAMA pursues an innovative approach, includes the private sector, and builds national capacity to reduce future emissions. The NAMA Facility also outlines feasibility criteria, under which NAMA support projects must establish how different stakeholders are involved, how their roles are defined, whether human rights principles are respected, and if gender and environmental issues have been considered.

Financing NAMA implementation

Based on the NAMA Facility criteria, Germany and the UK already held two selection rounds and are currently supporting 9 projects with a joint contribution of €120 million. Three of these project are currently in implementation; the world’s first NAMA implemented for housing in Mexico, low carbon coffee NAMA in Costa Rica, and Indonesian sustainable urban transport NAMA.

Given the success of the first two calls for projects in 2013 and 2014, two new donors joined the initiative in 2015 – the Danish Ministry of Climate, Energy and Building (MCEB), and Foreign Affairs (MFA) and the European Commission. Thanks to their contribution of €27 million, the NAMA Facility will provide funding of up to €85 million (about $95 million) in the third selection round. This contribution constitutes a significant increase of the overall support for NAMAs available so far.

To this 3rd round, which closed in July 2015, 42 project outlines were submitted. Most of them aim to support energy efficiency and renewable energy projects in the developing world, mainly in Africa (19), and Asia (13). Currently, the outlines are being evaluated with regard to their eligibility, ambition, and feasibility.

An important step, but more needs to follow

The new financial package is only a small amount of the actual finance needed to advance more NAMAs to the next level. In fact, it represents 1% of the stated support requested. However, it is a much needed step towards achieving the high mitigation potential of NAMA activities and could open the door to other sources of investments. While the NAMA Facility provides grants through the German, UK, Danish governments and the European Commission, it also encourages delivery organisations and implementing partners to use these grants to establish mechanisms to mobilize public and private investment (e.g. concessional loans, guarantee funds).

By founding the NAMA Facility, Germany and the UK have addressed the need for tailor-made climate finance and built an important initiative that provides both policies and fiscal measures to support the developing countries’ transformational change towards low carbon development. Furthermore, the NAMA Facility can provide experience and lessons that can be valuable to further develop the Green Climate Fund’s investment framework and inform the selection procedure of first projects and programme proposals, expected this November. It is yet to see whether the GCF will top the efforts of the NAMA Facility and address the diverse expectations for NAMA support.

Urska Trunk / Carbon Market Watch