174 Pages
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Financial Engineering of Climate Investment in Developing Countries


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Learn more
174 Pages


This book gives the first no-nonsense, hands-on account of the financing principles and perspectives for Nationally Appropriate Mitigation Actions against climate change.

This book gives the first no-nonsense, hands-on account of the financing principles and perspectives for Nationally Appropriate Mitigation Actions (NAMAs), the new kid on the block in the battle against climate change. NAMAs are finding their own identity, and most importantly, finding a new financial basis without relying on a carbon market and carbon credit. While the NAMA model may be the right instrument at the right time, it is spawned from the climate change negotiation sphere that continues to suffer from its lack of interaction with the other spheres involved in its actual deployment. Despite 20 years of negotiations, a barrier remains between concept and action. The disconnect is first and foremost between the political sphere and the private-sector sphere, and is particularly rooted in the understanding – or misunderstanding – of finance. This book bridges the gap by addressing policymaking and private sector financing in one volume. It disarms myths, hides nothing behind political correctness and applies a good measure of common sense to advance guidance for the financing of actions that will allow developing countries, having become the prime source of greenhouse gas emissions, to contribute to the global battle against climate change.

List of Figures and Tables; List of Abbreviations; Foreword; Preface; Chapter 1 Introduction; Part I What Is; Chapter 2 Climate Change and Nationally Appropriate Mitigation Action; Chapter 3 Learning from the CDM; Chapter 4 Defining NAMA Finance; Chapter 5 The Financing Tools . . .; Chapter 6 . . . And the Financiers; Chapter 7 Engineering and Leveraging the Finance; Part II What Ought to Be; Chapter 8 Challenges to NAMA Finance – Mandates, Aggregation and Lack of Instruments; Chapter 9 Roles of the Green Climate Fund; Chapter 10 Conclusion; Notes; References; Index



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Published 01 June 2014
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EAN13 9781783080229
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Financial Engineering of Climate Investment in Developing Countries
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Financial Engineering of Climate Investment in Developing Countries
Nationally Appropriate Mitigation Action and How to Finance It
Søren E. Lütken
Anthem Press An imprint of Wimbledon Publishing Company www.anthempress.com
This edition first published in UK and USA 2014 by ANTHEM PRESS 75–76 Blackfriars Road, London SE1 8HA, UK or PO Box 9779, London SW19 7ZG, UK and 244 Madison Ave #116, New York, NY 10016, USA
Copyright © 2014 Søren E. Lütken
The author asserts the moral right to be identified as the author of this work.
All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.
British Library CataloguinginPublication Data A catalogue record for this book is available from the British Library.
Library of Congress CataloginginPublication Data A catalog record for this book has been requested.
ISBN13: 978 1 78308 018 2 (Hbk) ISBN10: 1 78308 018 3 (Hbk)
Cover photo: Gabriela Insuratelu/Shutterstock.com
This title is also available as an ebook.
List of Figures and Tables List of Abbreviations Foreword Preface
Chapter 1 Introduction
Part I What Is
Chapter 2 Climate Change and Nationally Appropriate Mitigation Action  The Identity of a NAMA  PoAs and NAMAs  Defining Appropriateness  The Substance of NAMAs  Summing Up
Chapter 3 Learning from the CDM  The CDM Experience  It’s a market – live with it  Thriving on domestic finance  Small is beautiful …  Costinefficient emissions reduction  Additionality revisited  Reverse engineering the CDM  Summing Up
Chapter 4 Defining NAMA Finance  Government Investment Motives  Private Investment Motives  Summing Up
ix xi xiii xv
9 10 15 16 20 24
25 26 28 29 30 31 33 34 37
39 44 46 48
Chapter 5 The Financing Tools . . . Public Sector Sourcing Instruments  Environmental Fiscal Reform  Nondomestic sources  Public Sector Operational Instruments  Grants  Taxes  Loans and guarantees  What happened to the carbon credit?  Summing Up
Chapter 6 . . . And the Financiers  The Intitutional Investor  The Insurance Companies  Hybrid Sources of Financing  The philanthropic foundation trustees  The Banks  Multilateral development banks  National development banks  Green Bonds  Blending  Summing Up
Chapter 7Engineering and Leveraging the Finance  Transformation  Leveraging Finance from Different Sources  The ‘who goes first’ dilemma  Additional domestic public funding  Approaching international financiers  Engaging the local private sector  Attracting Foreign Direct Investment (FDI)  The Right Order of Leveraging  Summing Up
Part II
What Ought to Be
pter 8 Challenges to NAMA Finance – Mandates, Aggregation and Lack of Instruments The Aggregation Gap The guarantee system and its shortcomings The ECAs as aggregators
51 54 55 59 59 59 60 61 62 65
67 70 72 74 75 76 76 77 77 79 80
81 83 84 85 86 88 89 91 92 97
101 102 105 109
Mandates Summing Up
Chapter 9 Roles of the Green Climate Fund  The Green Climate Fund and Risk  The Green Climate Fund and Green Bonds  The Green Climate Fund and Equity  The Green Climate Fund as Aggregator  Other Options  Putting the Pieces Together  Summing Up
Chapter 10 Conclusion How to Start?
Notes References Index
110 115
117 120 122 126 129 130 133 134
137 141
143 147 149
Figures Figure 1. NAMAs in the context of general development planning Figure 2. Weight of policy versus project NAMAs relative to capabilities of developing countries Figure 3. Emissions reduction returns on investment in the CDM Figure 4. From expost to exante approvals in CDM Figure 5. Financial engineering of NAMAs Figure 6. Suboptimal investments in emissions reduction Figure 7. Multilateral investment in mitigation and typical instruments employed Figure 8. Sourcing instruments and operational instruments for NAMA financing Figure 9. Direct and indirect taxation Figure 10. Cost of types of risk Figure 11. The right order of leveraging Figure 12. The financing value chain Figure 13. Instruments in the financing value chain Figure 14. Maximizing leveraging Figure 15. The aggregators’ central role in organizing financing Figure 16 Expanded securitization model Figure 17. Simple investment structure involving green bonds Figure 18. Options for financial product development
Table Table 1. Types of Policy NAMAs
22 32 36 44 46
55 57 63 86 94 95 96 104 119 126 133